Take home pay or put it in super: Government considers opt-in super model
The Age.
January 13, 2021


The federal government is considering giving workers the choice of putting more money into their superannuation or having more take-home pay in an attempt to break a political deadlock ahead of a looming rise in the super guarantee.

The plan, which has not gone to cabinet and is part of a range of possible reforms being examined by the government, would trigger a battle with Labor, the unions and the $3 trillion industry superannuation fund sector who argue increases above the current 9.5 per cent guarantee are necessary for workers to have an adequate retirement.

Prime Minister Scott Morrison and Treasurer Josh Frydenberg will consider a proposal for opt-in superannuation increases.   


Increasing the super guarantee to 12 per cent was a coalition election commitment and Labor is prepared to campaign fiercely if the government changes its mind. But with some Coalition MPs pushing for no increase in the super guarantee and economists concerned the rise will affect the nation's economic recovery during the coronavirus pandemic, the Morrison government is looking for fresh ways to manoeuvre on the promise.   

The 9.5 per cent guarantee is scheduled to rise to 12 per cent in 2025, delivering an extra $20 billion into earners' retirement accounts with the first 0.5 percentage point hike in the super guarantee legislated to kick in from July. However, a new model being considered for the nation's superannuation system could see workers given the choice about whether to put more of their money into super.



The idea is one of several options multiple government sources confirmed were in the early stages of being actively discussed and may form a type of "opt in" arrangement for workers. Details about the mechanisms are still being worked on and there has not been any economic modelling on the scheme. But the plan could involve letting the super guarantee rise to 10 per cent and making the final 2 per cent optional.

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The sources said many options were being scrutinised and changing the legislation would be politically difficult especially in the lead up to a federal election. Those involved with the proposal say it is complemented by a wide-ranging review into the retirement income sector led by former Treasury deputy secretary Mike Callaghan and released in late-2020.

The Callaghan report found a more efficient use of savings at the current guarantee rate would do more for people's lifestyles in retirement than hiking the guarantee. "Using superannuation assets more efficiently and accessing equity in the home can significantly boost retirement incomes without the need for additional contributions," the report said.

Labor has repeatedly claimed the Morrison government wants to undermine superannuation and destroy compulsory retirement savings. The federal government has disputed these claims, saying its aim is to improve the system not dismantle it, but has been concerned about the possibility of a "scare campaign" on super with the financial support of the industry super funds.

Industry Super Australia ran a significant advertising campaign last year on free-to-air television reminding viewers about the upcoming increase. The marketing has been criticised by some Liberal backbenchers as a "threat" and an example of how much the sector can spend on marketing should the federal government look to block the rise. The super funds have also warned any delay in the guarantee increase could affect their ability to invest and help with the nation's economic recovery.

Labor financial services spokesman Stephen Jones said the government should "stick to election commitments" with the rise to 12 per cent. "Workers shouldn't have to pay for their own pay rise," Mr Jones said. "This is a sneaky back-door tax increase." He said someone earning $50,000 a year would get about $5 extra a week in their pay packet by turning their super guarantee increases into income, but the government would take a bigger portion back as income tax.   



Prime Minister Scott Morrison said in 2020 the government would "carefully consider" the future of the superannuation guarantee while Superannuation Minister Jane Hume has warned a rise in super would come at the expense of wage growth. The Reserve Bank and the Grattan Institute agree there is a trade-off.

More than a dozen Coalition MPs and Senators have also criticised the legislated increase, arguing it puts pressure on businesses during the coronavirus pandemic and would affect future pay rises at a time when workers need the money and the economy