One small change is set to make a huge improvement to the future of working Australians and that’s an increase in the amount of superannuation paid by employers on top of wages.
It’s an increase some people will barely notice and others may miss altogether, but in 10 to 40 years’ time, many are sure to be thankful they have more money to retire with.
Under government legislation, super contributions will begin to rise by 0.5 per cent increments from July until they reach 12 per cent in 2025.
These small increases add up a big boost to the average worker’s nest-egg.
Research by Industry Super Australia shows a 30-year-old worker on an average wage stands to gain more than $85,000 in extra super by the time they retire.
That sum could make all the difference between a retirement of haves and have nots.
On the one hand, a future with regular holidays and on the other, a future spent worrying about how to stretch the dollars further.
The super increase comes at a crucial time for Australia’s economy, which is beginning to recover after the worst of the COVID-19 pandemic.
Rising super contributions will be welcome news to the 4.5 million Australians who withdrew $34.4 billion via the early super access scheme introduced by the federal government in the wake of the coronavirus pandemic.
With more super in their retirement savings, these Australians will be able to recover some lost ground.
While the average Australian may not be aware of the imminent lift in super contributions – polls by research firm UMR reveal just 11 per cent know of the increase – every worker stands to benefit.
They also deserve to know the difference it will make to their future. Find out more.
The assumptions used to estimate the potential impact of changes to the Superannuation Guarantee are, in our opinion, reasonable for the purposes of working out the estimates. The assumptions are based on objective evidence on long-term net returns, fees, relevant economic forecasts and analysis on wages, prices and productivity.
- This model works for accumulation funds only. It will not work for defined benefit funds.
- This model does not allow self-employed people to project their retirement balance
- Outcomes are based on contributions being made annually, at the mid-year point, on your fees being deducted annually and your investment returns being credited to your account annually
- We assume that your super is invested in a balanced option
- Superannuation Guarantee Contribution is currently 10% of ordinary time earnings and is presently legislated to incrementally increase to 12% by 2025
- The LISTO applies from 1 July 2017
- No tax is payable on fees
- We assume that you have provided your Tax File Number to your superannuation fund
- All amounts are in today's dollars, which means they are adjusted for inflation
- The assumed salary increase of 3% per annum has been adopted as an average figure based on a 37-year projection — that is, from the age of 30 to the retirement age of 67
- We assume that an annual inflation rate of 2%. In addition, a further annual increase of 1% is included to take into account the cost of meeting increases in community living standards. This means a total assumed inflation rate of 3% is allowed for. Employer and voluntary contributions, fees and the concessional contribution cap increase with inflation.
- We assume that you will satisfy the Work test at older ages and so are able to contribute to superannuation
- We assume that when you exceed the concessional contributions cap ($27,500 in 2021/22), you pay contributions tax according to your adjusted taxable income on any additional superannuation contributions
- Assumes retirement at the preservation age of 67
Your retirement outcome will be affected by many things including the amount of contributions you make, fees, investment returns and regulatory changes. Some factors that may affect your retirement outcomes may not have been taken into account.
Outcome is based on your contributions being made annually, at the mid-year point, on your fees being deducted annually and your investment returns being credited to your account annually.
This is a Model, not a Prediction
The tool is not intended to be relied upon for the purposes of making a financial decision. Consider a fund’s PDS and your objectives, financial situation and needs, which are not accounted for in this information before making an investment decision. You are responsible for your own investment decisions and should obtain specific, individual advice from a financial services licensee before making any financial decisions.
See www.industrysuper.com/assumptions for more details about modelling calculations and assumptions. Consider a fund’s Product Disclosure Statement (PDS) and your personal financial situation, needs or objectives, which are not accounted for in this information, before making an investment decision. This article was first published by The New Daily on 10 December 2020. The information referred to may change from the date of publication and care should be taken when relying on such information. Both The New Daily and Industry Super Australia are wholly owned subsidiaries of Industry Super Holdings.