Economists have long believed that the cost is passed back to the workers. And empirical studies have confirmed this. A study by one of the great experts in this area, the Grattan Institute’s Brendan Coates, has found that, on average, about 80 per cent of the cost is passed back to employees over the following couple of years. (Which raises an interesting point. Few if any commentators – including me – have thought to point out that some part of the cost-of-living pain working families have felt in the post-COVID period is explained by the government indirectly requiring them to increase their saving for retirement, thus leaving them less to spend.)
Between July 2021 and today, employees’ super contribution has been increased by 2 per cent of their pre-tax wage. In three weeks’ time, that will increase to 2.5 per cent. Of course, you’ll get that money back, with interest, but not until you retire.
Loading
For years, many people have worried that they aren’t saving enough to live comfortably in retirement. And for years, the banks and fund managers that make their living looking after your super fund savings – which they do by taking a seemingly tiny percentage of your accumulated savings each year – have given people an exaggerated impression of the size of the lump sum they’ll need to have on retirement to be comfortable, in the hope that people will add their own contributions to their employer’s contributions, this adding to the fund managers’ fees.
The worriers should remember this. Compulsory employer contribution started in 1992, at 3 per cent of wages. This was gradually increased to 9 per cent in 2002. As we’ve seen, between 2013 and next month, it will have gradually increased to 12 per cent.
Get it? For older people, the more of their working years that have been in this century, the less cause they have to worry about not having enough. And for younger people, the more of their likely total of 45 years working that are ahead of them, the more the risk of not having enough should be the furthest thing from their minds.
Remember that the less you have in super, the more help you’ll get from the age pension. But the more super you have, the less eligible you’ll be for a part pension. It oughtn’t to be too long before it’s rare for people to retire on a full pension, and common for people to have so much super their eligibility for a pension is wiped out.
Loading
The big qualification to all that, however, is whether you own your home. Life can be a lot tougher for those retirees dependent on renting in the private market. Pensioners who rent get some assistance from the government – and more than they used to – but it can still be a struggle.
Remember, too, that it’s easy for a person still working to overestimate how much they’ll need to live comfortably in retirement. They’ll be paying far less, if any, income tax. They won’t be putting money into their super. They won’t have dependent kids.
They’ll go on a few overseas trips – and then they’ll decide they can’t be bothered going on another. The older you get, the less you want to run around doing expensive things. Coates’ research confirms that many retirees end up saving rather than spending all their retirement income.
The more pertinent question is whether some young person who spends all or most of their working years getting annual contributions of 12 per cent will retire with far more than they need to live comfortably – whether they’ll end up living like kings (if they have the energy).
So here’s the bad news: once you accept that workers actually pay for their employer contributions by receiving smaller pay rises over their working years, will they be forced to exchange a lower living standard while they’re working for more money than they want to spend in retirement?
Ross Gittins is the economics editor.
Ross Gittins unpacks the economy in an exclusive subscriber-only newsletter. Sign up to receive it every Tuesday evening.
