Lower income earners should be given a boost to their superannuation before they turn 40 to allow compound interest to generate greater retirement incomes according to Industry Super Australia (ISA).
ISA has proposed this “Super Seed”, to be set at $5,000, would be provided to people in the bottom three income deciles which it said included those working part-time or casually or those with broken working patterns such as women who have taken time off to raise children.
The extra contributions would come from the Federal Government with ISA stating that when “combined with increased earnings taxes on the higher level of savings around half of the long run cost is offset, making it highly affordable in its own right”.
Using modelling created by ISA and Rice Warner Actuaries the proposal stated that for low income earners now aged 25 to 29 and retiring in 2055, their superannuation balances would be between $72,000 and $168,000 higher at retirement
ISA also claimed Super Seed would have the greatest impact on single females in the lowest three income deciles with a boost in their superannuation anywhere from 38 per cent 247 per cent.
ISA said Super Seed compensated for gaps in contributions caused by low levels of earnings that may not trigger Super Guarantee contributions and by 2055 aggregate superannuation balances would be $440 billion higher thus reducing age pension costs in that year alone by $1.7 billion.
“The superannuation system is meant to have comprehensive coverage. Yet large numbers of Australians at different points in their working life do not have sufficient earnings to attract employer contributions, have them paid at a low level, or cannot maintain continuity of contributions during spells away from work.”
“The proposal turns on its head the idea of just making catch up contributions later on and instead make contributions at a point where compounding will deliver the biggest bang for buck.”
