The policy, announced in this month’s budget, would see those earning less than $450 a month from an employer receive super for the first time, and is estimated to affect around 300,000 low-income and casual workers.
It’s been heralded as an important first step in evening up structural inequities in the super system that favour men with more reliable work patterns, with independent senator Jacqui Lambie saying last month that the policy would be “the simplest way to help women save” when they are working part-time as a result of family responsibilities.
However, new data from Chartered Accountants Australia and New Zealand (CA ANZ) indicates that while low-income workers could earn $567 a year in super as a result of the changes – assuming the SG rises to 10.5 per cent next year – the real impact to their retirement balance would be a lot less.
“The ‘real’ contribution to the worker’s super account at these thresholds is only around $262 net per year, or $22 per month, after standard fees, taxes and insurance is applied,” CA ANZ super leader Tony Negline said.
“Typical fees and taxes would amount to $205 or 36 per cent of the total contribution and insurance costs might amount to at least $100 per annum.
“The contribution tax may be refunded, but only if a low income earner submits a personal income tax return or provides non-tax return lodgement advice to the Tax Office.”
Mr Negline said it was important for funds to look at ways to lower costs for this cohort if the changes went through, given their balances were likely to be severely eroded.
“There need to be some changes to fee structures for our lowest earners or other incentives to protect these micro balance accounts,” he said.
“Perhaps just like how low-income workers are exempt from paying the 15 per cent tax on super contributions, the super industry might find a fair and equitable way to lower fees for these new super contributors.”
However, Mr Negline suggested that ultimately the pension was likely to provide a better income for lower income earners than small super contributions that would not see as much benefit from scale and compounding.
“That’s not to say we shouldn’t be encouraging lower income workers to be contributing to their own superannuation – if they have the capacity, they should – but we know for this group this is often not possible and most live day-to-day and week-to-week just to meet the basic costs of living,” he said.
“The age pension was designed as the appropriate safety net for those that remain in this form of insecure, irregular and lower-paid employment throughout their lives. The Retirement Income Review points out that many people in this cohort will have more income from the age pension when they retire.”