Industry superannuation funds have blamed lax compliance by the Australian Tax Office for the chronic underpayment of super contributions, leading to workers retiring with tens of thousands of dollars less than they otherwise would.
The accusation is set to spark a row between union-backed schemes and the ATO in a Senate inquiry hearing in Melbourne on Wednesday.
The ATO declined to comment on the criticism, but in a submission to the Senate economics committee it questioned industry funds’ claims that as many as 30 per cent of employees were missing out on compulsory super payments, with unscrupulous employers, sham contracting and the cash economy responsible for the underpayment of $3.6 billion.
Financial Services Minister Kelly O’Dwyer also weighed in, telling The Australian Financial Review a government-initiated working group examining non-payment of super would provide an interim report by the end of the month, and a final report in March.
The government’s working group will develop practical recommendations to ensure employees get the superannuation they are legally entitled to. Employers are required to pay 9.5 per cent of an employee’s salary into their super account.
The ATO argued that Industry Super Australia’s method of calculating the number of people who were failing to be paid the super guarantee was flawed.
“The report substantially overstates the prevalence of SG [super guarantee] underpayments,” the ATO says in its submission to the inquiry into the impact of the non-payment of the superannuation guarantee
Union-backed schemes said that underpayment of compulsory super invariably occurred over long periods.
ISA said that ATO data from 2013-14 showed that people aged between 60 and 64 on salaries of between $50,000 and $75,000 who weren’t correctly paid compulsory super had almost 40 per cent less in retirement savings than they otherwise would.
Matthew Linden, public affairs director at ISA, blamed poor compliance on the part of the ATO for a $35,000 shortfall in workers’ retirement savings.
“It is disturbing that compliance systems are allowing the underpayment of the super guarantee to go on year after year. If the ATO had a more effective compliance system in place, the likelihood of employees being short-changed would be significantly reduced,” Mr Linden said, adding that it left the government short-changed on tax revenue and forced more retirees to rely on a government pension.
“The lower balances also mean retirees need to rely more on the age pension. The impacts are far reaching and the processes and enforcement around unpaid SG must be strengthened,” Mr Linden said.
Mr Linden disagreed with the ATO’s critique of ISA’s calculations, arguing they were done by a former Treasury official.
“We note they [ATO] offer no alternative estimate. If the ATO has concerns, they should explain why the basic methodology used by ISA is utilised by the ATO itself in targeted compliance activities,” Mr Linden said.
The ATO said that it had difficulty in monitoring the timely payments of the super guarantee, partly because retirement funds only reported super contributions on an annual basis, giving the Tax Office no access to data for up to 15 months after the start of any financial year.
It said workers sometimes did not report non-payment of compulsory super immediately, perhaps because individuals did not pay any attention to super until they neared retirement.
The ATO said in its submission that it had embarked on a number of strategies to improve employer awareness of their super responsibilities and educate workers about their rights.