Experts believe that the proposal to eliminate compulsory superannuation payments could cause more harm than good for many Australians.
Backbench MPs proposed the opt out super plan which would allow workers who have less than $50,000 to receive their super contributions as wages. The proposal was being considered by the federal government as part of its Retirement Income Review.
Retirement savings at risk
Compulsory super contributions are crucial to help Australians fund their retirement, said Peter Locandro, managing partner of Chan & Naylor in Melbourne, Moonee Ponds & Wheelers Hill. They would have to give up their super funds’ wages to accomplish this objective.
Your Mortgage reported that extra wages would help many Australians pay their bills, make mortgage payments and live better. What would stop people buying cars they don’t really need? Or overseas trips they can afford but won’t be able to afford? The risks of pushing this change would be how to monitor how much everyday Australians would be worse off in retirement.”
Industry Super Australia performed an analysis and concluded that the plan would raise workers’ taxes.
Wages are subject to higher taxes, while super contributions are exempt from the wage tax. Workers who leave super could not only risk their retirement savings but make them more vulnerable by paying higher taxes.
An example: A mother who works for $50,000 per month could lose nearly $300,000. She would also have to pay an additional $61,000 tax.
“The numbers aren’t lying. Bernie Dean, chief executive of ISA, stated that opting for super is a blatant tax grab to support the government’s bottom line.
Super to buy a house
“I think it would be smarter for policies to allow people to use superannuation money to buy a home. She stated that the money will be used to purchase an asset at minimum.
Megginson claimed the proposal to end super contributions would be a major step backwards in favor of low-income workers who wish to own a home, but are unable to afford it.
She explained that giving people access only to small amounts of superannuation funds on either a weekly or monthly basis is unlikely to result in people actually using the money in meaningful ways. “What happens in 30 years from now in retirement — when the superannuation funds they could have had compounding away for three decades are missing?”
Locandro said that super policies used to finance a home buy would pose the biggest problem.
“If young Australians could afford to buy their first house, what amount of superannuation do they have?” If you are in your 20s, and haven’t worked in a while, it is likely that you don’t have any superannuation. How effective is this policy? He stated.
Young Australians should make contributions to the super early to maximize the benefits of this scheme.
Locandro stated, “Spending early can increase compounding effects and provide Australians with more money for retirement.
“Savings and budgeting should be taught at home. They should also be part of the school curriculum. The world of money is changing rapidly over the past few decades and will continue to change. He said that Australians should be educated.