How an outdated rule could be holding back your retirement savings

300,000 people miss out on super due to a monthly threshold.

The government’s Retirement Income Review (the Review), released in July last year, highlights many areas where Australia’s super system could be made fairer. 

One of the rules singled out in the review is the $450-a-month income threshold that means many part-time and low income workers get no super.

About 300,000 Australians miss out on super because of this rule and the review found they’re “mainly young, lower income, part-time workers”.

What is the $450/month super threshold?

Currently, employers don’t have to pay super to those who earn less than $450 (before tax) per month from that particular job.

This means that many casual and part-time workers don’t get any super, including those who work multiple jobs, but earn less than this amount in each position.

The Review noted that around 63% of this group are women. Removing the threshold would lessen the inequality in retirement savings between men and women.

In a single month, women missed out on $4.7 million in super, and men missed out on $2.7 million because of this threshold. Still, the Review found that removing the threshold would only have a “small effect” on retirement savings.

Why is the $450/month threshold still in place?

The threshold is a remnant of an earlier, less digital time.

The Review concluded the original justifications for this rule (which has been in place since 1992) have become far less relevant. 

In a single month, women missed out on $4.7 million in super, and men missed out on $2.7 million because of this threshold

It was initially intended to reduce the administrative burden on businesses doing payroll. Now that payrolls are usually digitised, this isn’t a strong justification for not paying casual or part-time employees super. 

An earlier government committee report arrived at the same conclusion noting that the introduction of SuperStream (the way businesses must pay superannuation guarantee contributions to super funds) has made paying super easier for employers.

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The $450/month threshold: equal earnings, unequal super

Graphic of two people side by side.

Roberto gets $1000 a month from his one job at a supermarket. He gets $1000 in earnings and $95 in super

Gini gets $400 from one hospital, $300 from a second hospital, $300 from a warehouse. She gets $1000 in earnings and $0 in super.

‘The system needs to catch up’

Some respondents to CHOICE’s retirement survey explained they’d worked casual or part-time jobs because they had other responsibilities raising children or being carers. Because of these work patterns, they had much less in their nest egg.

“The current system needs to catch up with modern times,” said Carly*. “I had three children and worked casually and part-time all those years in entry levels jobs that suited school hours … In that time, I had only minimal super contributions.”

She has worked all her life and yet has no superannuation income as she always worked in part-time jobsMichelle, speaking about her mother-in-law

Michelle* told us that her mother-in-law, whose only income in retirement is the Age Pension, is living with her while she waits to get into a residential facility. “It’s so sad,” Michelle wrote. “She has worked all of her life and yet has no superannuation income as she always worked in … part-time jobs.”

Judy was another survey respondent who ended up with very little super after working in casual and part-time jobs. “The pension is just enough to keep me going … but not enough to allow much in the way of savings,” she says. “Travel is almost out of the picture.”

Judy also said she knew many women who didn’t get super because they took up casual work to raise their children.

Gaming the system

Women in Super CEO Sandra Buckley says the rule adds to the gender gap in super: “It’s a gap that should be closed, as many women earn over $450 a month but from multiple employers.”

She also says employers are gaming the current rule: “We hear from women that employers deliberately construct rosters to ensure that wages are below $450, and this is particularly true in the female-dominated sectors of the economy – retail, hospitality, childcare, aged care.”

* Not their real names.

What do business groups say about the threshold?

COSBOA

Council of Small Business Organisations Australia (COSBOA) CEO, Peter Strong, says that the organisation would support removing the threshold as long as the collection process for super was changed so that employers paid super directly to the Australian Taxation Office (along with the Pay As You Go amount of tax withheld they currently send there) rather than paying individual super funds.

If you took [super] from one place, the ATO, that would save you a fortunePeter Strong, CEO of COSBOA

Strong estimates that implementing this change would save business $1 billion in administration costs. This money could then be redirected to the staff who currently don’t get super without the businesses having to spend more.

He says the small businesses his organisation represents face too much complexity. “At the moment, super funds collect super from around 900,000 places, all the employers,” he says. “We’re saying if you took it from one place, the ATO, that would save you a fortune.”

Business Council of Australia

The Business Council of Australia was also approached for comment. It didn’t touch on the issue in its submission to the Review.

Economics References Committee

A report from the Economics References Committee (a group made up of politicians from across the political spectrum) previously found that removing the threshold “would not impose an undue administrative burden on employers”. It pointed to the introduction of the ‘SuperStream’ standard which set out how businesses must pay employee super contributions to the funds.

ATO

The ATO says that SuperStream enables employers to make all their super contributions for each period in one transaction “even if (their) payments are going to multiple funds”.

KPMG

Accounting firm KPMG has also entered the debate. It supported scrapping the threshold but recommended further consideration of the effect on staff’s take-home pay. 

Rice Warner

Consulting firm Rice Warner recommended abolishing the threshold to improve women’s retirement outcomes and found the administrative burden was now much lighter than when the rule was introduced. 

A step towards a fairer retirement system

The Economics References Committee found the threshold was “outdated, unnecessary and ultimately detrimental to the interests of casual and part-time workers, of whom a large proportion are women”.

The Review also concluded that scrapping the threshold would “improve gender equity” in Australia’s retirement system.

For those who currently get no super because of this rule, those extra dollars in their savings could make the difference

Xavier O’Halloran, director of Super Consumers Australia

While removing this rule wouldn’t offset the differences in super balances between genders on its own, Super Consumers Australia director Xavier O’Halloran says this doesn’t mean it’s not worth changing.

“Two reviews have now found this rule isn’t needed and isn’t fair,” he says. “It’s time to leave it in the past.

“For those who currently get no super because of this rule, those extra dollars in their savings could make the difference between being able to pay a power bill, or afford simple comforts like cups of coffee in retirement.”

This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.