Unpaid super can have a significant impact on super fund members’ retirement savings, both directly through reduced balances and indirectly by disrupting the compounding process, a critical driver of long-term investment growth.
Financial Impact of Unpaid Super
Each year, Australian employees lose out on billions in unpaid super. According to the Australian Tax Office (ATO) annual report*, Australian workers missed out on $5.2 billion of superannuation in 2023-24 despite their increased recovery efforts. This figure has steadily increased over the years as it was valued at $4.8 billion last financial year.
For an individual, even small amounts of unpaid super can grow into a substantial shortfall over time. For instance, missing just $5,000 in super contributions could reduce a member’s retirement balance by $38,000 over 30 years due to lost compounding interest.
The Role of Compounding in Super Growth
Compounding occurs when investment earnings are reinvested, generating additional returns over time. For superannuation, this means that returns earned on both contributions and prior returns are reinvested, creating exponential growth. Missing contributions disrupt this cycle.
A report** by the Super Members Council (SMC) estimates that around three-quarters of a member’s retirement balance comes from compound returns. Missing super early in a member’s career can result in significant losses over decades, forcing them to rely more heavily on government pensions or delay retirement.
Addressing the Issue
Our advocacy for unpaid super recoveries underscores the importance of stronger employer compliance and systemic solutions. In FY24 alone, IFS recovered $216 million in unpaid super guarantee (SG) contributions for over 253,000 superfund member accounts.
Members are encouraged to regularly check their super statements and report unpaid amounts promptly to their super fund. However, it is important for super funds to have a recovery program in place to ensure their members are receiving their super, an entitlement that is rightfully theirs.
Analysis conducted by the SMC identified the ATO only detect about 22.5% of the estimated underpayments. This indicates that funds have significant work ahead to recover their members' unpaid super.
Understanding the interplay between unpaid super and compounding emphasises the importance of early intervention and education. For super funds, it is crucial to take steps to recover unpaid super for their members, as even modest contributions today can significantly impact their financial security in retirement.
To find out more about IFS’ Unpaid Super services, contact Adrian Gervasoni, our Chief Commercial & Partnerships Officer at agervasoni@ifs.net.au
*Australian Taxation Office, 2024. Commissioner of Taxation Annual Report 2023-24
**Super Members Council, 2024. Fixing unpaid super: Making super fairer for workers and employers alike