Not so super for those on low incomes

SUPERANNUATION has probably done more to help the rich get richer than provide lower-income earners get a better retirement income than the pension.

Just as a conference was taking place of major superannuation funds this week I have had related to me a couple of cases that illustrate the point — both young people in low-paid jobs whose employers have not paid them their compulsory superannuation levy.

They in turn tell of others in the same boat.

The Inspector-General of Taxation has been inquiring over the past 10 months into the effectiveness of the Australian Tax Office in collecting the levy. But some flaws in the scheme are obvious, especially for the young.

For a start, employers pay the levy quarterly and have a month from the end of the quarter to pay. Superannuation statements come out every six months.

So, if you are relying on a paper trail it can be some months before you can work out if your employer has paid you.

Young people often work casual jobs or move jobs frequently. They often do not have computers and easy access to the internet, so they cannot monitor payments. Moreover, even when they have net access, they find the process of internet banking and signing on to superannuation membership electronically too difficult, or they are not interested.

Job-hopping young people can end up with a lot of small amounts in a lot of funds, each attracting fees that eat all the earnings.

The amounts are often quite small. And they are not accessible until the employee turns 60, which for most young people is so far away as not to worth bothering with. If you can’t get it now why bother.

Young people are often not financially literate. And many work in industries where cash and high turn-over are rife, for example, the building industry. Employers in these industries can be less than industrious with their paperwork, often using employees’ money for trading before it is due to be paid. Then they get into trouble and can’t pay.

Sometimes the lag in payments results in money having no account to be put into. Nearly $14 billion in lost super is out there. My guess is that most of it is owned to the less well-off.

In short, the young, poorer educated and poorer people are more likely to be diddled out of their superannuation.

True, there have been some changes. Medicare can be used to collect super. It is easier to amalgamate many small funds into one to reduce costs, but not easy enough. There should be some default amalgamation and investment option.

Another review of the superannuation system is being undertaken by Jeremy Cooper, a former chair of the Australian Securities and Investments Commission.

He should put recalcitrant employers on notice that they are going to be chased down. It might spur them into taking notice when employees ask about super payments.

Cooper has suggested an electronic system based on tax file numbers. It would mean the levy would go directly to the fund as it is earned – not up to four months later – and the money’s owner would be easily identified. The tax file number is exactly the opposite of Tony Abbott’s view of numbering people (as with students) as not valuing unique people.

The number makes people unique. Names are not unique. People’s names can be misspelt, changed, expressed in several different ways with abbreviations, initials, middle names and the like and so they and their super rights are lost.

If an electronic data-matching system comes about, it will fix in the future many of the difficulties faced by our two young friends. But the few recalcitrant employers should not get away with past deeds of what amounts to theft. During the reform process they should be hunted down.

It is difficult to prove a negative, but after a reasonable search I have not be able to find a report of a prosecution of an employer for failing to pay the levy. The amounts are too small for investigators to worry about. But they add up. There have been, on the other hand, prosecutions at the other end of the scale: of people fiddling with do-it-yourself super schemes.

The introduction of the Superannuation Levy was perhaps Paul Keating’s most worthwhile reform. The trouble is the Howard Government did not complete the plan. Keating wanted the levy to rise gradually to 12 per cent. Howard stopped it at nine per cent and that is where it stays.

At this week’s conference the Australian Institute of Superannuation Trustees released a survey showing that 60 per cent of Australians supported a rise to 12 per cent and were prepared to pay for it directly from their wages.

People want to be forced to save. They know it is too difficult to do voluntarily. The Government should act on this.

Unless the levy is raised, the low- and middle-income earners will be treated unfairly. With a nine per cent levy they will be little better off than having the aged pension. All that sacrifice for no extra benefit. At 12 per cent they have the prospect of a passably prosperous retirement.

Further, the low- and middle-income earners get nowhere near the tax benefits of high-income earners. Those at the top get more than 30 per cent of their super as a tax break. Those at the bottom get almost no tax advantage.

The system should be levelled. Everyone could get, say, a 20 per cent tax break. The Government could top up the super of those without enough other income to get a tax break, funding with less generous breaks for the wealthy.

Governments are worried about the ageing population. If they fix superannuation, especially for lower- and middle- income earners, the ageing population will look after itself.
This article first appeared in The Canberra Times on 19 March 2010

2 thoughts on “Not so super for those on low incomes”

  1. A bit of trim-and-tuck here and there to get superannuation back into shape? That’s piddling in the ocean. A pox on superannuation altogether.
    It had a reasonable purpose originally – when it served as a reward for long (almost generational), and loyal, service by a workforce of carefully chosen employees. But as a means of forced savings by Government decree and subsidy, and further bastardised due to being sub-contracted by Governemt to a multiplicity of entrepreneurs, it is nothing other than a rort benefiting the well-heeled at taxpayer expense.
    If Government wants forced saving by the population, and to buffer national reserves, in the manner Paul Keating declared of his super initiative, it is hardly serving its purpose. As you have pointed out.
    As it stands, super schemes compete with each other for better returns, at the expense of ensured stability and national benefit – “green” or other national-benefit schemes are not mandatory.
    Instead of government tax breaks, especially to the wealthy, via super the nation would get more benefit from increased taxation to provide a fair scale of aged pension for all, regardless of financial status; and divorce themselves entirely from anything to do with super schemes outside of their own workforce (and that maintained depending on their social philosophy).
    What a pity it is that “we will not increase taxes” is viewed as a vote winner; while taxes are actually covertly applied, in a most retrogressive manner.
    Cheers, Crispin, for airing this important issue.

  2. Great article. Currently trying to help my son amalgamate small sums ranging from a few dollars to a thousand dollars in 5 different super funds acccumulated from casual and tempoary work while a uni student – a headache causing task even for the university educated! I think it bad that a) even a so called industry fund charged my son annual fees that eroded his account to almost nothing b) while employers and funds gave him huge amounts of super paperwork to fill in on commencement of employment, not one gave him a form or advice on what to do with the super when the temporary job was finished. I think there should be one default low cost amalgamation fund and when a young person say under 25 is employed in a casual or temporary job or leaves a permanent job after a short term, they are given a simple to fill in form form for the default fund. The would still retain the option of using the employers standard funds, which may then treat them better. Also PHD students and other researchers on scholarships, should have a superannuation levy added to their stipends, as most are in their late 20’s by the time they are in standard employment attracting super.

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