New Rules For Super Contributions Required

If the government refuses to lower or abolish the threshold for superannuation contributions, it should introduce a pro-rata model for super guarantee payments or face a higher age pension bill, a new report will recommend.

Australia's $2.3 trillion retirement savings sector is increasingly failing workers because the system was designed to cater to individuals who work full-time, or at least who do not have multiple employers.

But with the casualisation, or "uberisation" of the workforce, increasing numbers of young people in particular are working either part-time, casually or as contractors.

From a retirement savings point of view, the problem is that employers are only forced to make super guarantee payments when an employee earns more than $450 a month before tax.

"We believe the super system that has been built up since the early 1990s is a success story. But it is failing certain Australians, particularly the young and women," said Nick Dyrenfurth, executive director of the John Curtin Research Centre, a think tank.

"I think this will be a barbecue stopper in the years to come. Underemployment and casualisation will flow through to retirement incomes. People will look at their super and realise they don't have enough," Dr Dyrenfurth said, warning that one consequence would be a blowout in the bill for the age pension as few people became fully funded or partially funded retirees.

"If people aren't accruing super, inevitably this will put pressure on the age pension," Dr Dyrenfurth said.

"This is a growing problem that will require sophisticated, bipartisan public policy solutions to prevent millions of Australians falling through the cracks," said Vision Super chief executive Stephen Rowe.

A report to be published by John Curtin Research Centre and Vision Super in September will call on the government to scrap or lower the super guarantee payment threshold, or introduce a system that allows for pro-rata payments.

Under that model, employers would effectively make super guarantee payments on earnings below $450 a month. Where a person was earning over the threshold with two or more employers, but not earning above the threshold with a single employer, the super guarantee would kick in and ideally be paid on a pro rata or proportional basis by each employer.

In addition, the report will urge the government to raise the super guarantee to 12 per cent and improve financial literacy so that young people are more aware of their rights.

The proportion of individuals working part-time, casually or on a contract basis has risen to 40 per cent of the workforce, up from about 25 per cent a decade ago, Mr Dyrenfurth noted, with the projection that the figure will likely increase.

Research by Expert360, an online consulting start-up, predicts that 40 per cent of the professional workforce will become on-demand, freelance workers by 2025. Half of all big business will rely on at least 20 per cent contractors, consultants and temporary employees within the next three years.

Earlier this year a number of submissions to a Senate Economics Reference Committee into super guarantee non-payments recommended the $450 monthly threshold for super payments be removed.

Sally Patten

Financial Review

22 July 2017

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