Effective from 1 July 2021, a host of superannuation changes kicked off, significant among them was the increase in the minimum rate of superannuation guarantee being increased from 9.5% to 10% of an employee’s ordinary time earnings. The rate of superannuation guarantee is set to increase by 0.5% each year until it reaches 12% by 1st July 2025.
Former Prime Minister and Federal Treasurer Paul Keating, who was responsible for the establishment of the compulsory Superannuation regime in Australia in 1991 (superannuation guarantee was originally 3% at this time), hailed the recent increase as “a historic moment,” saying the move reflected “the maturity of the Australian workforce in agreeing to set aside 10 per cent of their wages and salaries for a later and better retirement.”
In total, Australians will get an extra $1.5 billion paid in super over the next 12 months, with those aged under 40 receiving 50% of the increased super payments. People aged in their 20s will get a super boost more than any other age bracket as they will have a larger sum working over a longer duration (also referred to as the power of compounding!). The extra contributions will help young workers recoup the savings they lost by opting to raid their superannuation to support themselves through the coronavirus downturn, in some cases without really needing to. Industry Super data also revealed that women would benefit slightly more, with 3.41 million women due to receive the increased payments compared with 3.36 million men.
Importantly, employers will need to ensure their payroll systems are up to date to allow for these rate changes, whilst employees need to be aware that the superannuation guarantee changes may impact their net take-home pay.
For example, if an employee is paid a salary package that includes superannuation guarantee and the rate of superannuation guarantee increases, then the salary component of their pay will decrease by the same amount. However, if an employee is paid based on an agreed salary, or just wages for hours worked, then the 0.5% increase to superannuation guarantee will effectively be added to the employee’s pay at a cost to the employer.
Ultimately, communication between employers and employees is key to making this a SUPER CHANGE for all. If you are unsure how these changes will affect you, talk to your Financial Adviser today.
Jason Kirk (CFP® Professional, SMSF Specialist Adviser, GradDip. App.Fin&Inv, B.Econ) is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.
Note: This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person or entity. Accordingly, to the extent that this material may constitute general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. This is not an offer or recommendation to buy or sell securities or other financial products, nor a solicitation for deposits or other business, whether directly or indirectly.