Political will is gathering to scrap the outdated $450 per month earnings threshold before workers are eligible for the superannuation guarantee.
Labor Senator Jenny McAllister and Liberal Senator Jane Hume both pledged to work towards removing the impediment, which excludes some of the nation’s most vulnerable workers from the universal retirement savings system.
“It is effectively stolen wages and there is an incredible ethical obligation to do something about it,” McAllister said.
Hume agreed that it was a feature of superannuation law that needs urgent reform.
She said there was “a reluctance” within the Coalition at the moment to consider more changes to superannuation for fear of it looking like the government was “tinkering with the system”.
“But this is one area that really needs to be addressed,” she said.
Hume described the $450 per month income threshold as a “a dinosaur issue” that had been “put in the too-hard basket”. However, she said this was due to “administrative complexity rather than ideology”.
McAllister and Hume made their comments at the Australian Institute of Superannuation Trustees’ Conference of Major Superannuation Funds on the Gold Coast, March 22-24.
Hume chairs the Senate Standing Committee on Economics, of which McAllister is also a member. The case for scrapping the $450 per month earnings threshold before employers are obligated to pay an employee’s 9.5 per cent in deferred wages to their super fund is one issue the committee is currently reviewing.
The rule has been in place since compulsory super was introduced in 1992. At the time of the introduction of the super guarantee, the $450 per month earnings threshold was designed with reference to the annual threshold at which income tax was applicable, of roughly $5000. That is no longer relevant considering the annual earnings threshold for income tax is now $18200.
Changes in workforce participation patterns over the past 25 years, with an increasing number of people now employed on a casual or contract basis often with multiple employers, is another reason why the $450 per calendar month threshold is outdated.
“When compulsory super was established the workforce was not as fragmented. Now it is much more common that people will have multiple jobs, all earning less than $450 per month,” McAllister said.
“Often it is very low income people who are most affected by this rule…and it disproportionately effects women.”
Both senators noted that the disadvantage many women face due the $450 per month income threshold was a recurring theme of last year’s Senate Inquiry into Economic Security for Women in Retirement.
Hume said that while there was a clear case that the rule needed to be changed, there were a number of issues that would make it difficult, such as the burden on small businesses.
“There is no easy solution, but it absolutely needs to be addressed,” Hume said.
Before being elected to the Senate, Hume was employed as a senior policy manager at AustralianSuper, the country’s biggest industry super fund. Prior to that she had a career in investment banking and retail funds management.
Senate report on unpaid super
Another issue relating to the fairness of the compulsory retirement savings system that the Senate Standing Committee on Economics is currently investigating is the problem of unpaid super.
Hume flagged that the committee was preparing a paper on the issue of non-payment of compulsory super entitlements that is due to be released on April 12, 2017.
Research commissioned by Industry Super Australia, released earlier this year, estimated that up to $6 billion a year worth of workers’ super guarantee entitlements go unpaid.
Hume said one challenge for workers with missing super payments is that it is incumbent on them to follow up with the Australian Taxation Office – rather than the ATO being more proactive about chasing non-compliant employers on behalf of workers. This is particularly challenging in situations where a business has gone bust and workers are left in the lurch and chasing other entitlements, such as wages owed, via the Fair Work Ombudsman.
Often the problem arises because small businesses misappropriate super for cash management purposes causing payments to be delayed. Another serious problem is “phoenixing”, a term used to describe operators who intentionally go bankrupt to avoid paying debts and then resurface under another name.
“We need to look at penalties for employers who consistently subject employees to unpaid super,” Hume said.
McAllister said there needed to be more clarity in Australian workplaces so ordinary people were more aware of their entitlements, and less exposed to the pressure of having to stand up for their rights in situations where there was a distinct “power imbalance” between them and the person with power to fire them.