Paul Clitheroe's Making Money: 9 million to benefit from super uptick. Is it enough?

July 1 saw Super Guarantee contributions ratchet up to 11%, and that extra half a percent up from 10.5% last financial year will make a valuable difference to the retirement savings of many.

Industry Super Australia says about 8.8 million Australians will benefit from a boost to their nest egg, with an extra $330 annually set to flow into the super accounts of the typical Australian worker.

This boost may be small, but the beauty of compounding is that it can make a big difference to the value of your super over time. A 30- year-old on the median wage for example, is expected to have an extra $18,300 at retirement solely due to the 0.5% uptick in compulsory super.

By 2025, employer super contributions are set to be pegged at 12% of wages, and Industry Super says this should see today’s 30-year-old retire with about $500,000 in super.

Australians currently approaching retirement now have an average of $350,000 in super. It’s a vast improvement on the early 1990s before compulsory super was introduced, when only 10% of retirees had super as a source of income.

This is all good news. But the uptick in compulsory super contributions won’t benefit everyone equally. Australian women continue to retire with around 25% less in super than men.

Women generally have lower super balances than men across the whole age distribution. The Association of Superannuation Funds of Australia (ASFA) says a key reason for the super gender gap is women taking time out of the workforce, or working reduced hours, to have and raise children.

Taking control of your wealth…today

Lobbyists have long advocated for policy change to reduce the super gender gap. Options floated include compulsory super being extended to paid parental leave, something that would benefit around 170,000 women annually.

ASFA has also pushed for a ‘Super Baby Bonus’, whereby the federal government would deposit $5,000 into the super accounts of women on the birth of a child. Together with employer-paid super during parental leave, ASFA says this would almost completely offset the impact of a year off work.

Until any such measures come into place, women will likely continue to lag behind men when it comes to retirement savings. This can have real consequences throughout a woman’s senior years.

Already, single women rely most heavily on government pensions, and the Council on the Ageing (COTA) says older women are disproportionately impacted by unemployment and are the fastest growing group at risk of homelessness[1]. This all points to the need for women to embrace opportunities to grow their super.

Four easy ways to grow super

The start of a new financial year can be a great time to kick off four simple steps that can help all of us – regardless of gender, maximise our super while we’re working:

1. Embrace your super today: It’s easy to treat super as something you only need to think about when you retire. By then it could be too late. Taking an active interest in your super today matters – after all, it is your money.
2. Bring all your super together. If you have more than one super fund it’s worth bringing the money together by combining different accounts into one fund. It makes it easier to track your super, and you’ll likely save on fees and doubled-up insurance premiums.
3. Be mindful of fund fees. All investments come with costs. Unlike returns, fund fees are a given. This is why it’s important to look at the fees you’re paying on your super fund to be sure it’s competitive. As a guide, Canstar[2] says fund members generally pay between around 0.91% and 1.21% of their super balance in annual fees. Some funds charge less. Others can charge more – as much as 2.11% annually. Over time, high fees will eat away at your super.
4. Add to your super where possible. I realise the cost of living crunch and higher home loan rates are making it harder for a lot of Australians – both men and women, to find the cash to invest either inside or outside of super. But if you can afford it, it’s worth the effort.

It’s not just about long term compounding. Making your own super contributions while you’re working can also have tax benefits through deductible super contributions. Low and middle income earners can also be eligible for the government to chip in through a super co-contribution.

It’s not just about super

Achieving financial security doesn’t just hinge on super savings. There are good reasons to grow investments outside of super.

Our super is generally only accessible from age 60, and plenty of Australians find themselves retiring prematurely or facing a reduced working week often through circumstances beyond their control.

ABS data[3] shows one in five people retire because of personal sickness, injury or disability. One in 10 are retrenched or dismissed and struggle to find work. Retired women are more likely than men to leave a job to care for an elderly relative.

Whatever the case, a portfolio of investments can provide a valuable source of passive income that helps tide people over until they can access their super.

The good news is that the latest ASX Investor survey found women are increasingly becoming active investors. Of the net 1.2 million Australians who started investing on the ASX since 2020, half are women.

Sure, adding to your investments means giving up some spending power today. But without this, the bigger sacrifice could come along later in life when your retirement lifestyle isn’t quite what you’d hoped for. And of course, thanks to the power of compounding, even small amounts invested can grow into impressive balances over time.