COMMENT

Super changes mean average wage earners may now find it harder to fund their own retirement.

Super changes mean average wage earners may now find it harder to fund their own retirement.

Suddenly the retirement outcomes for anyone under the age of about 50 look a lot bleaker based on the government's extension of its freeze on the superannuation guarantee at the present level of 9.5 per cent.

Under the previous Labor government, the guarantee was to steadily rise to 12 per cent by July 2019.

The Coalition had already extended the timetable for getting to 12 per cent.

The Abbott government remains committed to 12 per cent but the latest extension to the freeze means the guarantee will not reach that level until July 2025.

The bad news has been offset a little for low-income earners after the government said the low-income superannuation contribution – which was expected to be axed – will now remain in place until 2017.

The contribution is worth up to $500 in the super accounts of low-income earners.

It was brought in by the Labor government to compensate low-income earners because they pay more tax on their super than on their take-home pay, whereas other workers receive a tax break.

The 12 per cent level of super guarantee has not been plucked out of the air.

Someone on an average income with a super guarantee of 12 per cent for a 40-year working life could expect to save about $400,000 in today's money, which is enough, together with the age pension, to afford a decent retirement.

But with the guarantee now stuck at 9.5 per cent for several years, workers are further behind the eight ball.

The guarantee is not high enough, on its own, to fund the retirement of an average income worker.

It means that those who can afford it should take more responsibility for retirement savings by sacrificing pay into super.

However, salary sacrificing is only really an option for the better off.

Salary sacrificing is not tax-effective for lower-paid workers, who usually have more immediate financial needs than saving for retirement.

The freeze hits the lower paid disproportionately.