Government co-contribution

8.74 If a low-income earner aged under 71 years makes a voluntary contribution to his or her superannuation fund, the Government makes a matching co-contribution. The ALRC recommends that eligibility for the co-contribution be extended to people aged up to 75 years. This would be consistent with the present restrictions on voluntary contributions generally, and would be a workforce participation incentive for people aged between 71 and 75 years.

The current law

8.75 Low-income earners making personal after-tax superannuation contributions may be eligible for co-contributions under the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 (Cth). The purpose of government co-contributions is to help low-income earners save for retirement.^[93] The co-contribution amount depends on the personal contribution amount and the individual’s income. In 2011–2012, the maximum co-contribution amount was $1,000, but it is expected to be $500 in 2012–2013.^[94]

8.76 The co-contribution is subject to both a work test and an age limit. A co-contribution is only payable if 10% or more of the person’s total income for the year comes from work or carrying on a business.^[95]

8.77 People aged 71 years and over are ineligible for government co-contributions.^[96] The age restriction affects workers who are aged 71 but under 75 years (because people 75 years and over cannot make voluntary contributions to their superannuation funds). It is possible that the exclusion of those aged 71–74 years was unintentional: the co-contribution bill had its second reading in October 2002, only a few months after the age limit on voluntary contributions moved from 70 to 75 years.

Should the restriction be removed?

8.78 The proposal to remove the exclusion of workers aged 71–74 years^[97] was widely supported by stakeholders, both on the basis that it would be a workforce incentive,^[98] and to avoid discrimination.^[99] AIST reported, moreover, that women interviewed on their experiences in retirement confirmed that the government co-contribution was, in fact, an incentive to remain in the workforce.^[100]

8.79 One word of caution was offered by the Law Council. The Council noted that low income earners over 71 years may also be entitled to access the Age Pension and ‘funding of the Co-contribution without any age limit might create complexities in term of avoiding a duplication of entitlements’.^[101] The Australian Industry Group also considered that the proposal should be more thoroughly assessed.^[102]

8.80 The ALRC is not able to calculate the cost of extending eligibility, but it is not likely to be high. In 2009, only a quarter of people eligible for the co-contribution made voluntary contributions.^[103] In the year to June 2011, there were only 94,400 people over 70 years still in the labour force.^[104] The ALRC recommends that the age restriction should be removed on the basis that it would be an incentive to workforce participation for people on low incomes. It would bring the age limit for the co-contribution in line with the age limit for voluntary contributions, contributing to system coherence and simplification. Finally, it would avoid unnecessary age discrimination.