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Underemployment supports case for scrapping super rule

Superannuation  |  22/06/2017  |   3 min read

With an increasing number of Australians taking up several casual or contract jobs to earn a regular income, there is growing pressure from Labor and the industry super funds to scrap the rule that excludes mandatory employer contributions into super for those employees earning less than $450 a month.

The industry funds are pointing out that this rule particularly impacts the retirement outlook for lower paid workers, especially women, who might earn less than this amount from each of several different employers.




Place this in the context of the rising ‘underemployment’ rate in Australia and you start to understand the potential impact of this rule on many people.

According to the Australian Bureau of Statistics (ABS), while unemployment has fallen since February 2015 by 0.5% to 5.7%, underemployment has remained at 8.5%. Women accounted for nearly 57% of underemployed people in November 2016. The highest underemployment rate is in the 15-24 age group.*

In recent analysis (PDF), the Association of Superannuation Funds of Australia (ASFA) said 'super should be for all Australians' and calculated the current rule meant a young student in casual work could forgo around $1,900 of super  contributions over five years, while a 37-year-old single mother could miss out on about $1,425 over three years.

These foregone contributions, assuming investment earnings of around 6% per annum in super, would amount to retirement savings reduced by $26,000 and $8,000 respectively, according to ASFA.

The Council of Small Business Australia (COSBOA) appears to be supportive of the change, but suggests that to make administration of super easier, super contributions could be collected through the normal PAYG income tax system. COSBOA says the Australian Tax Office could then be responsible for allocating the contributions into the employees’ preferred super funds.

It argues that this would also ensure there were no backlogs of missing contributions, which would add an extra layer of protection for vulnerable workers, especially if a small business collapsed.

It is important to note that there are already facilities in place to manage employee super. If your business nominates Equip as its default super fund, you have access to a free clearing house service in which you can set up payments for employee super contributions into funds other than Equip. For more information on this, check out this page.

Where did the $450 rule come from?

When the $450 rule for super contributions was introduced in the early 1990s, earning $450 a month meant an employee was just below the tax-free threshold of $5,200. But this threshold has since more than trebled to $18,200, turning the $450 rule into a quite arbitrary cut-off amount for super contributions. It is important to also note, that prior to 2003, the ABS says the proportion of people unemployed was higher than those underemployed. In other words, full-time jobs were more the norm.

* If you’re interested in learning more about the unemployment v. underemployment trends, or how underemployment is defined, you can visit the ABS website here.

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