By now you may have come across reports saying Aussie workers are losing on average AU$3,750 of their superannuation every year. If you work in construction or hospitality, there’s a chance your employer could be skimping on their super contributions. In total, dishonest business practices rob employees of up to AU$2.5 billion every year.
There are two things we need to look at here. The first affects honest, hardworking Australians. The other affects honest, hardworking Aussies who are being treated as outcasts.
I know that’s confusing, so let me explain…
Companies that avoid paying any part of super to workers don’t deserve any sympathy. They should be punished accordingly. People losing super from this have every right to be angry. But one of the factors identified by the report points the finger at workers receiving cash in hand payments. And that’s where things get tricker.
Superannuation fund managers say that cash payments result in workers missing out on super they’re entitled to. They’re right in principle, but they’re also speaking as fund managers missing out on a cut of this money.
If the superannuation industry had their way, cash payments wouldn’t exist. That’s because cash in hand payments don’t tend to end up in super funds. But we have to ask ourselves whether some people would get the opportunity to work at all if cash payments were removed entirely from the economy.
Why the underground market is so important for the economy
The so called underground economy, or black market, is an opportunity for many to work when professional routes aren’t possible. The World Bank thinks that the black market makes up a staggering 14% of the Australian economy. The Australian Bureau of Statistics (ABS) thinks it’s closer to 2%. Such an inconsistent reading might lead you to believe the ABS has something to hide.
Should someone with a criminal past be excluded from a job? If you’re like me, you might believe in giving people a second chance. Employers that are less strict about who they hire — and pay cash — may choose to overlook a past offender’s record (for their mutual benefit). It might not be strictly legal, but it’s another job created that wouldn’t otherwise exist.
Another big factor leading people to the black market are a lack of qualifications. Professional certifications are desirable in many cases, but don’t apply to every industry and job. Qualifications may decide who gets jobs, but they don’t tell you who’s the most capable. And this doesn’t just apply to people who are underqualified, but even those who are overqualified.
New migrants into the country often find that one member of the family needs to work below their level of qualification to secure a steady source of income. Quite often they’re unable to find work unless they take lower paying, cash in hand jobs. Someone who’s willing to work below the minimum wage doesn’t want any super fund or government telling them they shouldn’t be allowed to provide for their family. These aren’t the jobs we need to be weeding out of the economy.
That’s why the superannuation industry is wrong to target this area as a key focus for reform. They’re putting their self-interest ahead of the wellbeing of many Aussie families.
But the industry does have a point about companies that avoid paying super on existing obligations.
There’s no excuse for any company to be doing this. Superannuation contributions aren’t an act of goodwill. It’s an income you’d otherwise be entitled to now. And few workers would accept being short-changed by AU$3,750 every year. But that’s exactly what some employers are doing.
Companies that use financial difficulties as an excuse are no better. The report highlighted that businesses facing liquidation were more likely to skimp on super contributions. This alone is costing workers up to AU$200 million in super contributions every year. And it’s something that needs to be eradicated.
How super funds plan to change the current system for their benefit
The superannuation industry wants action. Cbus chief executive David Atkin wants the government to act on employer transgressions over super as soon as possible. Employers cheating workers out of their super is costing the government AU$400m in tax revenues every year. That gives the government reason enough to act on it.
Cbus manages up to AU$27 billion in super assets for employees in the construction and building industries. They’ve been one of the worst hit by the rorts. That’s because cash in hand payments and business volatility are rife within both industries. You can easily see why they’re one of the leading voices to clamp down on dodgy businesses.
Cbus wants to see a two step approach adopted by the government to combat superannuation evasion.
Mr Atkin first wants to see wage payments align with superannuation contributions. He says that advances in payments systems make it easy for employers to do this. That would clear the way for an easy transition away from cash in hand payments. This makes sense for a superannuation fund that’s affected by untrustworthy employers as Cbus is. But that could destroy the underground economy, leaving many workers shut out of so called legitimate jobs.
Mr Atkin’s second proposal is to take a firmer approach to companies breaking the law. He wants to see harsher punishments for any business found guilty, though it’s not clear what this would be. This is something we can all get behind. Penalising companies that don’t pay the full agreed superannuation contributions of employees is fair. You can’t put a price on your retirement.
If you think you’re exempt from this because you’re younger, think again. If a 25 year old was losing the average AU$3,750 a year in super contributions, they’d lose a total of AU$18,750 over a five year span. Over a 40 year career that could balloon out to AU$150,000. Not a small sum for anyone. That’s the difference between a comfortable retirement and just getting by.
If you receive your income cash in hand you won’t care about Cbus’ AU$27 billion fund, or any other fund for that matter. But for people with designated superannuation contributions, Cbus’ approach is a step in the right direction for the entire industry.
Mr Atkin also feels the Australian Taxation Office (ATO) should be given more government resources to combat this. The ATO has responded by saying that it’s using improved systems to track what employers do. They think this will help combat employers skimping on workers’ super contributions. But that may not help people on lower incomes.
The ATO thinks it would cost too much money to chase smaller superannuation claims. That only shows where ATO’s priorities lie. The superannuation rorts mainly affect lower income earners in the first place, so it’s concerning that the ATO deem these cases unworthy.
We need to punish companies that break the law by reneging on contracts with their employees. Anyone who misses out on any percentage of their superannuation faces a tougher retirement.
But at the same time the government should take care before destroying the underground economy. Not that it will stop them from trying. The government misses out on tax through cash in hand payments. With the superannuation industry voicing its concerns, it won’t be a tough sell. But it could create a big problem for many Australians in the underground economy. With employment rates at over 6%, the government needs to be careful with what it does next.
Contributor, The Daily Reckoning
PS: The superannuation industry is rife with abuse. Even if you’re not a victim of evasion of super contributions, you’re likely to be affected by hidden fees that steal just as much from your retirement fund.
The Daily Reckoning’s managing editor, Bernd Struben, has written a free report ‘The Hidden Fees Gouging Your Retirement Money…and What You Can Do About It’, showing you how to safeguard your superannuation money from fraudulent practices. To find out how to download of copy of this report, click here.