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$650k boost or wages bust? What new super changes mean for you

·Personal Finance Editor
·4-min read
A piggy bank on a sky blue background, a person opening a paycheck and hands removing money from a wallet
The new financial year will also bring about the first of some major superannuation changes (Source: Getty)

As of 1 July 2021, the planned superannuation guarantee rise will come into effect, meaning Aussies super contributions will increase from 9.5 per cent to 10 per cent.

Come July, the super contribution will rise by 0.5 per cent to 10 per cent, and is scheduled to increase by 0.5 per cent each year until it reaches 12 per cent on 1 July 2025.

For some Aussies, this will mean their take home pay will decrease 0.5 per cent while for others their employer will shoulder the increase.

Whether or not your pay day will be impacted will depend on your employment contact.

If you’re a full time worker who gets paid in an all-inclusive package (e.g. $65,000 including super), your employer does not have to absorb the rise and your pay packet may be impacted.

If you’re a full time employee and your pay contract is, say, $65,000 plus super, then your employer cannot reduce your pay.

If you’re a casual worker or on a contract, your employer also cannot reduce your pay to make up for the superannuation rise.

There are pros and cons on each side, so here is a breakdown of both sides of the argument.

Why the super rise is good

Superannuation provider Colonial First State (CFS) said Aussies should try to make the most of the 1 July changes to super, saying it’s a major win for millions of Australians.

CFS believes millennials can make an extra $650,000 at retirement by maximising the new increase while those over 60 years old could get an extra $11,000.

This is because younger Aussies have a higher number of working years ahead of them, so they stand to gain the most in their retirement from the superannuation guarantee increase to 12 per cent.

Colonial First State General Manager, Kelly Power, said 1 July is a great opportunity for Aussies to reset their retirement savings plans for their future.

“The boost for retirement balances is greatest for younger workers, thanks to the power of compounded investment returns,” she said. “This is particularly true for those who withdrew their super early last year to deal with the pandemic and cover basic expenses.

“Now is the time to start making up some lost ground by using these contributions to replenish their super and rebuild their nest eggs,” Power said.

CFS estimates that for pre-retirees aged 50-64 years with a higher disposable income but fewer working years ahead of them, they could stand to add between $36,000 and $296,000, depending on whether they made additional contributions.

“These additional savings in your super will determine the lifestyle you enjoy in your retirement years,” Power said.

“It could mean treating yourself with an extra holiday each year or being able to keep your family home where you have an emotional connection instead of downsizing, or even helping to pay for your grandchildren’s school fees.”

Why the super rise is bad

Australia is going through a period of low to no wages growth, so our take home pay is staying the same while the price of goods and services keeps rising.

This has been a major issue for the Reserve Bank of Australia (RBA) which has consistently said that slow wages growth is a drain on the economy.

In a recent speech, RBA governor Philip Lowe said businesses’ “laser-like focus on costs” could be hamstringing the broader economic recovery.

“Most businesses feel they are operating in a very competitive marketplace and that they have little ability to raise prices. As a result, there is understandably a laser-like focus on costs: if profits can't be increased by expanding or by raising prices, then it has to be achieved by lowering costs,” Lowe said.

“This has become the predominant mindset of many businesses. This mindset can be helpful in making businesses more efficient, but it also has the effect of making wages and prices less responsive to economic conditions.”

There is a big concern that with the ability for businesses to rely on employees to shoulder the cost of the super rise, Aussie workers will be worse off.

Lowe noted that even in areas where businesses are struggling to find workers, there’s a reluctance to increase wages.

Business’ stinginess is a product of the resources boom, when the exchange rate appreciated significantly.

“When one Australian dollar was worth more than one US dollar, many Australian businesses felt that their Australian dollar cost structure was simply too high,” Lowe said.

“You might recall that through this period many businesses were saying that Australian costs, including labour costs, were leaving them uncompetitive.”

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