Kelly Power
More Australians are engaging with their superannuation and are positive about new increases to the Super Guarantee (SG) and higher contribution caps. However, the COVID-19 pandemic is causing uncertainty around retirement plans.
The findings are from a national survey of more than 2,000 Australians released yesterday by leading superannuation provider, Colonial First State.
The CFS research revealed:
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More Australians are regularly checking their superannuation balances than last year (54 per cent in 2021 vs 42 per cent in 2020)
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Two-thirds (66 per cent) of Australians are positive about the changes to SG and concessional contribution caps, with younger workers looking to build their super funds through additional contributions
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However, COVID-19 continues to cause uncertainty around retirement plans with 1 in 4 people considering a delay to their retirement and work for longer, particularly among pre-retirees (30 per cent).
The survey was undertaken in early July amid lockdowns in Greater Sydney with more than 2,000 currently employed Australian workers.
Seventy per cent of Australian workers were aware that the SG increased from 9.5 per cent to 10 per cent from 1 July. However, more than half (55 per cent) did not know about the increase in the annual concessional contribution caps from $25,000 to $27,500, suggesting they are unaware of the financial gains they could make ahead of retirement.
Chief Executive Officer of CFS Superannuation Kelly Power said: “More than a year on, the COVID-19 continues to cause financial uncertainty in the lives of many Australians. As a result, people are looking more closely at their finances – including their retirement savings.
“It’s encouraging to see that Australians increasingly recognise the importance of super as a savings vehicle for retirement and are showing higher levels of engagement, but there is still room for improvement.”
“The repercussions of unemployment and lost savings during the pandemic have taken a toll as we can see from our research that a quarter of all Australian workers are rethinking their retirement plans and are considering working longer.
Ms Power says the increase in the SG and higher contribution caps will help support a better retirement for millions of Australians, particularly in this time of uncertainty.
Australians see net benefit from SG increase
According to the CFS research, a majority of Australian workers (66 per cent) are positive about the super changes, with more than a quarter (27 per cent) believing the financial benefit will be significant.
Nearly twice as many workers have shrugged off concerns that a higher SG may financially impact their wages or take-home pay compared to those who think it will (45 per cent vs 26 per cent).
“We understand that some employers may not absorb the cost of the SG increase and may reduce an employee’s take home pay to compensate depending on their remuneration agreement. Our analysis reveals that due to tax differences, the impact on their take home pay may be significantly less than the extra contributions they receive in return”.
“For example, a 35 year old full time employee earning just over $89,000 would receive an additional $344 per annum in SG due to the first 0.5 per cent increase to 10 per cent, but their take home pay would only reduce by approximately $10 per fortnight or $260 per year. It’s also worth noting this employee could accumulate an extra $76,626 at retirement (age 67) due to the SG increases to 12 per cent,” Ms Power explained.
Younger Australians to super-charge
In response to the increased contribution caps, 30 per cent of Australian workers said they are planning to contribute additional funds into their super, either via salary sacrifice (20 per cent) or direct after-tax contributions (10 per cent).
Among those looking to increase their contributions, more than half (53 per cent) are aged between 25-44 years, followed by wealth accumulators (45-54 years) and pre-retirees (55-65 years) at 20 per cent each. More than a third (37 per cent) are looking to contribute to the maximum amount permitted ($27,500pa).
“It’s encouraging to see younger Australians are looking to make the most of these super changes including those looking to rebuild their retirement savings after withdrawing some funds early during the pandemic last year.
“Starting to take action early not only offers them the greatest claw back opportunity to cover the lost ground from last year but also allows them to benefit from the power of compounded returns, while saving some tax dollars at the same time. Overall, it’s a win-win,” added Ms Power.
Salaried full-time workers are the most inclined about wanting to make extra contributions (two-thirds), followed by salaried part-time employees (22 per cent), compared with self-employed and contract workers.
However 30 per cent of those surveyed said they either don’t have the disposable income to make extra contributions or believe the SG increase will take care of their super.
Ms Power concurs: “Many workers automatically benefit through their employer making higher SG contributions. However, if you’re looking to get ahead of the curve in securing the retirement lifestyle you would like, starting small but starting early is the way to go.”