

The surprise announcement came as the government unveiled legislation removing all taxes on super contributions for the 3.6 million workers earning less than $37,000 a year.

The assistant treasurer, Bill Shorten, yesterday said the government would abolish a cap that prevents older workers from receiving super contributions, in a bid to make the system fairer and encourage workforce participation. Employers presently have no obligation to make super contributions for workers who are 70 or older.

The government had vowed to raise the cap to apply only to people over 75. But after lobbying from Labor backbenchers and independents Tony Windsor and Rob Oakeshott, Mr Shorten said the cap would be scrapped from July 2013, costing the budget $5 million.

''This means that an additional 18,000 Australians aged 75 and over will get the benefit of superannuation if they continue working,'' Mr Shorten said.

The changes are contained in landmark legislation that will increase mandatory employer super contributions from 9 per cent of wages to 12 per cent. It will also remove the current 15 per cent tax on superannuation contributions paid by people earning less than $37,000 - about 30 per cent of workers.

The Age Discrimination Commissioner, Susan Ryan, said abolishing the age cap on super contributions was a significant victory in combating age discrimination in workplaces.

''This amendment sends a strong and positive message to older employees, and to their employers, that age should not be a barrier to employment, nor should it be a barrier to equal employee rights and entitlements," Ms Ryan said.

With the cost of supporting older people expected to rise as the population ages, the government also announced in 2009 that it would raise the minimum age for the aged pension to 67 from 2023.

Mr Shorten said the boost in the super guarantee would add $500 billion to the pool of Australians' retirement savings by 2035, and some of the savings would fund investment in the economy and infrastructure.

Removing the tax on super contributions for people earning less than $37,000 was a critical wealth-creation reform for lower-income earners, he said, benefiting women in particular.

''Australians understand that as we are living longer than ever before, we need to make sure that we don't work hard our whole working life and retire poor,'' Mr Shorten said.

About 900,000 Victorian workers are expected to benefit from the tax change affecting people earning $37,000 or less.

The Coalition says raising the super guarantee to 12 per cent will hurt lower-income earners by detracting from wage growth.