Australia’s Superannuation Guarantee Changes
What is the current super rate?
Under Australia’s Superannuation Guarantee laws, employers are normally required to pay the equivalent of 10% of ordinary time earnings in FY2021/22. Because of a concern that this will still leave many retirees too reliant on the age pension, the Parliament legislated a gradual increase of the percentage to 12% by 2025.
Why the rise?
Increases in the super guarantee have been discussed and implemented for almost as long as compulsory super has been around. Back in 1995, just three years after compulsory superannuation was introduced, economists were already warning that super contributions at current rates were likely to leave employees with insufficient super for a comfortable, independent income by the time they retire. In recent years, it has been generally accepted by governments that the super guarantee would need to be raised to 12% in order to meet the basic needs of Australian retirees in the future.
Why the staged approach?
The super guarantee will be increased from 9.5% in FY2020/21 to 12% gradually. This stepped increase gives businesses time to plan for the future, as they only need to make small increases each year rather than cope with a 2.5% increase all at once.
How much difference will it make?
Due to the wonders of compound interest, over time, the small 2.5% change in statutory super contributions can make a huge difference to your retirement income by adding thousands of dollars to your super balance. Try for yourself!
Assumptions
Investment returns
Inflation
Fees
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.
Fixed assumptions
- 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
Disclaimer
Limitations
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.
Who qualifies for the superannuation guarantee?
Almost all full-time, part-time and casual employees over 18 years of age, earning more than $450 per month are eligible for super guarantee contributions, or SGC. Employees under 18 years and private domestic workers (such as nannies) who earn more than $450 per month and work more than 30 hours a week are also eligible. Even certain contractors may be deemed to be eligible.
Many years ago, employees lost their eligibility when they reached a certain age, but this has been removed and there is no upper age limit.
Is there a limit on how much super guarantee is compulsory?
Yes there is, but it only applies to if you earn more than $235,680 per year. For the 2021 – 2022 financial year, the maximum super guarantee contribution that an employer must pay is increased to 10% of $235,680 per year, or $23,568.