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.
Because super payments can be legally paid quarterly, there can be a misalignment between the super published on a payslip and the amount deposited into an account.
Most employers do the right thing, but some bosses exploit the misalignment to hide underpayments from their staff – dudding their workers and gaining an unfair advantage over competitors in the process.
The outdated law is the key reason workers have been underpaid a staggering $33 billion over seven years, losing an average of $4.7 billion in unpaid super each year.
Modernising the law to align the payment of super with wages in the upcoming federal Budget would not only drastically reduce unpaid super rates it would also boost the retirement savings of all the 4.2 million workers who are paid super quarterly.
Industry Super Australia (ISA) modelling shows that a 30-year-old earning the age-based median wage could be $8000 better off at retirement if paid super fortnightly instead of quarterly, because contributions would compound for longer if paid more frequently.
ISA’s pre-Budget submission reveals the proposal would be cost neutral over the Budget’s forward estimates and deliver significant cost savings in the long-term.
Dealing with unpaid super will also put billions back into the retirement savings of millions of women.
ISA analysis shows that in 2019-20, 1 million women missed out on $1.3 billion, with a total of $10.8 billion lost over seven years – women who are younger and on lower incomes are more likely to be impacted.
To further lift retirement outcomes for women, the government should also 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.
The government’s commitment to legislate an objective of super should enshrine in law the community notion that super is savings to be used solely for retirement.
To lift retirement savings the government should:
- fix unpaid super: by mandating the payment of super with wages, increasing the ATO’s compliance activities, facilitating other actors to assist in recovery, include super in the National Employment
- standards and extending the Fair Entitlements Guarantee to cover super in insolvency.
- improve the Your Future, Your Super reforms: by ending the gaming of the performance test, expanding the assessment to all fees and funds and including 10 years historical fund performance.
- protect the fundamentals of the super system: by maintaining the legislated increases to the Super Guarantee and reflecting in legislation what the community think super is for – savings used solely as income in retirement.
- extend the super guarantee’s coverage: to allow ‘gig workers’ to be paid super.
Industry Super Australia Chief Executive Bernie Dean said: “Each year Australian workers are missing out on billions in super that they’ve earned, which is a crushing financial blow for them and their future”.
“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.”
Key facts:
- Changing the requirement to pay super with wages will drastically reduce unpaid super and give 4 million plus workers better investment returns.
- Analysis shows that in 2019-20, 1 million women missed out on $1.3 billion in super contributions, with a total of $10.8 billion unpaid over seven years.
- Unpaid super costs workers an average $4.7 billion every year.