The Superannuation Guarantee (Administration) Amendment Bill has now become law. Effectively this means that, pending any changes by the next Liberal government, the Superannuation Guarantee (SG) rate will be increased from 9 per cent to 12 per cent.
This change will happen gradually, 0.25 per cent for the first 2 years, from 1 July 2013 (2014 tax year), then 0.5 per cent a year (as per the table below), until it reaches 12 per cent from 1 July 2019 (2020 tax year).
What this means
If you are earning $50,000 (not including super) you would currently have at least 9 per cent or $4,500 a year paid into your superannuation.
The same wage, with a super guarantee rate of 12 per cent, would result in $6,000 a year being paid into your super fund.
The extra 3 per cent, or $1,500 in this case, compounded over time would make a big difference to a super balance when retirement is reached.
Editors note: Rough calculations, using one of the publicly available super tools (employment starting at 20 with an income of $50,000 and a moderately conservative income mix) would suggest that the difference at retirement could be as much as $77,000.
Super Guarantee Proposed Rates
Salary including super
If you know your salary, including super, simply divide by the SGC rate (now 9 per cent or 1.09) to get back to your salary excluding super. For example $54,500 including super divided by 1.09 = $50,000 excluding super.
Small differences now…
I was initially worried when I heard this that some people might actually have to put more into super than they would want to (although forced savings isn’t the worst thing in the world). But as the changes occur over seven years, and are paid by the employer on the gross salary amount, most employees won’t notice the difference.
For someone earning $70,000, an extra 0.5 per cent into super a year is about $350 a year (or $30 extra each month). And given that the super guarantee rate rises only 0.25 per cent in the first 2 years, an extra $15 a month probably won’t initially break the bank for most larger companies.
But the increased super levy will still have to be paid somehow and for most it will take the form of sacrificed, or deferred, pay rises. Of course in many situations it may also result in a lower gross salary package for new employees. Naturally there will be agitation for the increases to be added on top of existing wages and expected pay increases but for most companies this may be a difficult if not impossible scenario.
Projected big retirement benefit later
The government expects a 30 year old worker earning $70,000 to have an extra $108,000 when they retire. Of course this number would be based on a number of assumptions (x% growth each year, y% fees, z% inflation, a% salary growth, etc.) so it potentially might never eventuate.
You can keep working and contributing to super
Also in the same bill is an increase of the age which you can be paid super guarantee amounts from 70 to 75, but this might be changed to have no age limit.
The changes mentioned above are included in the Superannuation Guarantee (Administration) Amendment Bill 2011, which has amend the original Superannuation Guarantee (Administration) Act 1992.
The changes were originally spoken about in the 2010 budget announcement and are gazetted to start on 1 July 2013 (as long as the Minerals Resource Rent Tax becomes law which the government is relying on to partly finance these changes).
is an accountant, tax agent and founder of NoMoney
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