Retirement
What cost does wage-suppression really have on super?
Record-slow wage growth in Australia is threatening “severe long-run damage” to the superannuation retirement system and “aggressive” wage-suppression measures implemented by employers aren’t helping.
What cost does wage-suppression really have on super?
Record-slow wage growth in Australia is threatening “severe long-run damage” to the superannuation retirement system and “aggressive” wage-suppression measures implemented by employers aren’t helping.
That’s the view put forward by research institute, the Centre for Future Work, in a September report. The director at the research group, Dr Jim Stanford said wage-suppression strategies like temporary wage freezes, wage caps, reduced penalty rates and wage theft “directly undermine superannuation savings, and hence the future retirement incomes of affected workers”.
Mr Stanford said: “Workers’ superannuation payments are negatively affected by the suppression in wages below normal trajectories. The damage is then compounded over many years by the subsequent loss of investment income on foregone superannuation contributions.
Further, wage-suppression will have flow-on effects in retirement as both workers’ wages and employers’ contributions to super are constrained. “Government will share a significant portion of the resulting damage,” he said. “They will collect less in taxes on superannuation contributions and investment income, and will pay out more in means-tested Age Pension benefits (since workers’ superannuation incomes will be smaller).”
“All Australians will pay a significant price if wage growth is not restored, so that labour incomes begin once again to rise at least in tandem with productivity.
“Workers, unions, governments, and superannuation trustees and administrators should all be cognisant of the damage to superannuation accumulation… arising from wage-suppressing actions by employers.”
The report argued that the real cost of wage-suppression to aggregate superannuation balances upon retirement could exceed $100 billion (in 2017 dollars). Large corporations such as Aerocare, Qantas, Griffin Coal and Streets Ice Cream were singled out with the report arguing that “in excess of three million workers” have experienced wage theft.
“Millions of Australians have been confronted with one or more of these forms of wage suppression from their employers, so the aggregate impacts across the economy are enormous,” Mr Stanford explained.
The baseline superannuation accumulation simulation given in the report saw an “average” 40-year-old male with a starting salary of $84,859 run out of super at 90 after accumulating a nominal super balance of $886,704 upon retirement. The base case for the average 40-year-old woman with a starting salary of $30,000 saw her run out of super at 93 after accumulating a nominal super balance of $696,597 upon retirement.
However, Mr Stanford gave several examples of how wage suppression could impact the average worker. For example, the imposition of a two-year temporary nominal wage freeze (which the report argued equates to a 2.5 per cent real wage loss for each year of a zero per cent nominal wage change) would see a nominal loss in superannuation upon retirement of $37,458 dollars for men and $31,415 for women.
An indefinite freeze could cost men up to $41,977 (nominal) upon retirement additionally. The report noted that the figures assume that the loss in income resulting from wage suppression has been sustained and not recovered.
A reduction in Sunday penalty rates could cost both men and women $33,941 in nominal terms, underpayment could cost $59,878.
The removal of enterprise agreements could leave individual male retirees a staggering $268,543 poorer in nominal terms.
Mr Stanford concluded: “If the goal of the [superannuation] system… is indeed to maximise the retirement benefits of superannuation fund members, then the growing use of wage suppression strategies by employers is a relevant and concerning development – one that would seem to justify a response from the superannuation system.”
Superannuation
Aware Super takes on Australia's gender retirement gap, aiming for financial equality
Aware Super, one of Australia's largest superannuation funds with a 70 per cent female membership, is on a mission to close the gender gap that sees women retire with 30 per cent less super than men ...Read more
Superannuation
Age Pension increase prompts Australians to review their finances
The increase in the Age Pension, which takes effect today, should serve as a prompt for many older Australians to ensure they're maximizing their income as cost-of-living pressures persist, according ...Read more
Superannuation
Retirement reimagined as Australian optimism meets inflation worries in 2023 super fund insights
The latest reports on retirement confidence among Australians present a spectrum of sentiments, with fresh data revealing surprising optimism in some quarters while exposing underlying concerns in ...Read more
Superannuation
Aussie retirees face a shortfall as ideal retirement nest egg doubles what super will deliver
As Australians look towards retirement, the desired superannuation balance that many believe will ensure a comfortable retirement has significantly outpaced what they are on track to actually save. Read more
Superannuation
Super funds eye 6.5% return in 2023, despite a rocky start
As the year draws closer to its climax, Chant West unveils its projection for super funds in what can only be described as a year of economic ebbs and flows. Read more
Superannuation
A deep dive into Australia’s superannuation system
Australia has a robust retirement savings system known as superannuation designed to provide financial security to Australians in their post-work years. Read more
Superannuation
50,000 super fund members impacted by data breach
Around 50,000 member records were impacted by the breach that took place earlier this month. Read more
Superannuation
Two super funds tipped to reach $1tn by 2040
KPMG has released the findings from a new review. Read more
Superannuation
Aware Super takes on Australia's gender retirement gap, aiming for financial equality
Aware Super, one of Australia's largest superannuation funds with a 70 per cent female membership, is on a mission to close the gender gap that sees women retire with 30 per cent less super than men ...Read more
Superannuation
Age Pension increase prompts Australians to review their finances
The increase in the Age Pension, which takes effect today, should serve as a prompt for many older Australians to ensure they're maximizing their income as cost-of-living pressures persist, according ...Read more
Superannuation
Retirement reimagined as Australian optimism meets inflation worries in 2023 super fund insights
The latest reports on retirement confidence among Australians present a spectrum of sentiments, with fresh data revealing surprising optimism in some quarters while exposing underlying concerns in ...Read more
Superannuation
Aussie retirees face a shortfall as ideal retirement nest egg doubles what super will deliver
As Australians look towards retirement, the desired superannuation balance that many believe will ensure a comfortable retirement has significantly outpaced what they are on track to actually save. Read more
Superannuation
Super funds eye 6.5% return in 2023, despite a rocky start
As the year draws closer to its climax, Chant West unveils its projection for super funds in what can only be described as a year of economic ebbs and flows. Read more
Superannuation
A deep dive into Australia’s superannuation system
Australia has a robust retirement savings system known as superannuation designed to provide financial security to Australians in their post-work years. Read more
Superannuation
50,000 super fund members impacted by data breach
Around 50,000 member records were impacted by the breach that took place earlier this month. Read more
Superannuation
Two super funds tipped to reach $1tn by 2040
KPMG has released the findings from a new review. Read more