Understanding The New Super Guarantee Contributions

Summary

On July 1 the compulsory superannuation guarantee contribution made by employers will rise from 9.5 per cent to 10 per cent.

Content

About 8.3 million Australian workers are set to get a boost to their long-term savings from July.

On July 1 the compulsory superannuation guarantee contribution made by employers will rise from 9.5 per cent of your base salary to 10 per cent.

For someone on average earnings of $68,000 this will mean an extra $6.50 per week will go into your super coffers. The compulsory super guarantee rate has been sitting at 9.5 per cent since July 1 2014 and is set to rise by 0.5 per cent annually to 12 per cent by July 1 2025.

According to the Association of Superannuation Funds of Australia (ASFA), those who will benefit from the boost this month are mostly private sector employees – or about 77 per cent of all employees.

It reports that about 20 per cent of all employees already receive SG contributions at a rate of at least 10 per cent. So they will not be impacted by the SG rate increase. These people are mostly public sector employees, but it also includes private sector employees in industries that were once dominated by the public sector.

Originally, the super guarantee rate was set to rise to 10 per cent on July 1, 2015 and to 12 per cent by July 1, 2019. But it was successfully argued that the rise in super contributions could see employees miss out on wage increases. Even now there is concern that the increase in the super rate may lead to some employees being forced to take a pay cut.

ASFA’s figures show that the cost to an employer of the SG rate increase for a median wage earner on $60,000 per annum is $5.75 per week. It is $6.50 per week for an employee who earns average earnings of $68,000 per annum. For a 30-year-old worker this could amount to an extra $80,000-$100,000 in super over time.

ASFA reports that some wage setting arrangements in the private sector may give employers the discretion to adjust the remuneration of their employees.

About half of private sector employees have their wages and conditions determined by an award or an enterprise agreement and half have their wages and conditions determined by individual common law contracts, which are subject to certain minimum conditions and pay rates set by the Fair Work Commission.

In a paper on the subject ASFA argues that business generally has the capacity to pay the additional super as employees on average have not been fully compensated for productivity increases in the economy over the past two decades. With the economy making a strong and broad-based recovery from the COVID-19 crisis and staff shortages looming, it’s not a time for employers to be cutting wages. Only those workers who have contracts that specify that super is included as part of their total package are at risk of having to take a pay cut when the compulsory increase kicks in.

If your employment contract states super should be paid on top of your base salary you can look forward to watching your long-term wealth grow faster.

Please contact your financial adviser if you have any questions about the new super arrangements.