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Changes to superannuation guarantee

Money Tips

Superannuation guarantee changes

There was pre-budget speculation that the Government might alter the timetable for increases in the compulsory super contributions. Certainly, some Government MPs have suggested the contribution rate should remain fixed at the current level of 9.5%.

The increases in the super guarantee are legislated to increase as follows:

Period Rate %
1 July 2021 to 30 June 2022 10.0
1 July 2022 to 30 June 2023 10.5
1 July 2023 to 30 June 2024 11.0
1 July 2024 to 30 June 2025 11.5
1 July 2025 and thereafter 12.0

Despite the speculation, there was no change announced to the above timetable. Our view is that this is a sensible outcome. There have been countless studies done over the last 20 years that show that over a working life of 35 years, the annual savings rate to achieve a comfortable retirement with 65% to 70% of pre-retirement earnings should be around the 15% per annum mark.

This savings rate doesn’t have to come entirely through super (it could be any form of investing). There are also other factors to consider when looking at these savings rates. In the future, is it realistic to think that a person would have 35 unbroken years of working life to accumulate sufficient retirement funds? Also, as contractors are filling more jobs, many of these people fall outside the super guarantee net as they are often not considered to be an employee and hence have no compulsory contributions.

Another announced change in this area was to abolish the $450 per month income threshold effective from 1 July 2022. The current $450 per month minimum income threshold before SG contributions become payable will be removed. This means employees at all income levels will receive SG contributions.

This change was purported to assist females working part-time to accumulate more super, which indeed it will do. But consider a person working part-time earning $350 per month. From July 2022, the person will receive super guarantee contributions of $36.75 per month or $441 over a year. After July 2025, this will rise to $42 per month or $504 over a year. Administration fees will eat into these numbers a bit, so you can see that if the Government was serious about improving the super of part-time working females, they should have looked at more radical proposals.

One example of a policy development would be to allow the higher earning full-time working partner to split their super balance with the other, thereby creating more immediate equality.

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