Mandating more frequent super payments in the May Budget would end Australia’s multi-billion-dollar unpaid super rip-off while potentially also boosting investment returns for millions of workers who get all their legal entitlements, new analysis shows.
According to a study by Industry Super Australia (ISA), this may help combat the issue of billions of dollars of unpaid superannuation, which results from a discrepancy between the amount of super reported on a payslip and the amount actually deposited into a worker’s account.
Currently, super payments can be made on a quarterly basis, which creates an opportunity for some employers to exploit this misalignment to conceal underpayments from their employees. This practice not only harms workers by depriving them of their legal entitlements, but it also gives those employers an unfair advantage over their competitors.
As per data, the outdated law is the key reason workers have been underpaid a staggering $33 billion over seven years, losing an average of $4.7 billion in unpaid super each year. A 30-year-old worker earning the median wage based on their age could benefit by as much as $8000 at retirement if their super is paid on a fortnightly basis instead of quarterly. The study shows that this change would result in more frequent contributions, leading to a longer compounding effect on their retirement savings. The proposal is expected to be cost-neutral over the budget’s forward estimates and generate significant cost savings in the long term.
Additionally, addressing the issue of unpaid super would result in billions of dollars being returned to the retirement savings of millions of women who have been particularly affected by this issue. In 2019-2020, 1 million women missed out on $1.3 billion in superannuation, with a total of $10.8 billion lost over seven years. Women who are younger and have lower incomes are more likely to be impacted by this problem.
To further improve the retirement outcomes for women, the government is also proposing to pay super on the Commonwealth Paid Parental Leave Scheme and increase the Low-Income Superannuation Tax Offset to account for changes to tax brackets and increases in the super guarantee.
According to Industry Super Australia Chief Executive Bernie Dean, each year, millions of Australian workers are losing out on billions of dollars in superannuation they’ve rightfully earned, which is causing serious financial strain and jeopardizing their futures
“At this federal budget, our politicians have an opportunity to end the huge super rip-off undermining the future economic security of many young women and others on lower incomes.” “Aligning payment of super and wages is the right thing to do by workers, boosts government revenue, lifts investment returns and puts all employers on a level playing field.” “Super has been a boon for millions already, but it’s not perfect, and there are long-standing issues that the government needs to address to make sure that more women, gig workers and low-income earners get a fairer go.”
“Out on the street people know that super is money that you save for your retirement, and it is this simple notion that should be reflected in any laws designed to protect their financial interests.”
To enhance retirement savings, according to Industry Super Australia, the government should take the following steps:
- Address unpaid super: by linking super payments to wages, boosting the ATO’s enforcement efforts, empowering others to assist in recovery, incorporating super into the National Employment Standards, and expanding the Fair Entitlements Guarantee to include super in case of insolvency.
- Enhance Your Future, Your Super reforms: by preventing manipulation of the performance test, evaluating all fees and funds, and considering 10 years of historical fund performance.
- Preserve the core principles of the super system: by upholding the legislated increase in the Super Guarantee and reflecting the public’s perception of super as a savings plan to be used solely as retirement income.
- Broaden the super guarantee’s coverage: to ensure that gig workers receive super payments.