From 1 July 2014, the Superannuation Guarantee rate increased to 9.5% (from the 9.25% that applied for the 2013/2014 year). Superannuation Guarantee (SG) is the official term for compulsory superannuation contributions made by employers on behalf of their employees. An employer, regardless of whether they are a small or large business, must contribute the equivalent of 9.5% of an employee's salary for the 2014/2015 year.
Background: In May 2010, employed Australians received a pleasant surprise when the Federal Treasurer, Mr Wayne Swan, announced that compulsory employer super contributions were set to jump from the current 9% of salary to 12% by July 2019, an eventual 33% increase in Superannuation Guarantee (SG) contributions. On 29 March 2012, the proposed increase in SG entitlements received Royal Assent and became law.
The new Liberal government has promised to continue the SG rate increase, but at a slower rate. The Liberal government will be introducing amendments to slow down the increase in the SG rate. The Liberal government announced in the 2014 Federal Budget that the SG rate increase will stall for 3 years (from 1 July 2015), rising to 10% from 1 July 2018. The SG rate would then increase by 0.5% each year until it reached 12% by July 2022 (see table below).
2012/2013 - 9%
2013/2014 - 9.25%
2014/2015 - 9.5%
2015/2016 - 9.5%
2016/2017 - 9.5%
2017/2018 - 9.5%
2018/2019 - 10%
2019/2020 - 10.5%
2020/2021 - 11%
2021/2022 - 11.5%
2022/2023 - 12%
What does the SG increase mean for your retirement plans?
The SG increase has significant financial implications for anyone expecting to remain in the workforce for more than 8 years, because the full 3% increase takes affect from the start of the 2022/2023 year –in 8 years' time. According to the Federal Government, the 33% increase in the SG rate will give a 30-year-old on average full-time wages and extra $108,000 in retirement savings just by turning up for work.
There has been, and will continue to be, some resistance from employers, especially small business employers, to this policy. The former ALP federal government argued however, that the 3-year lead time (from May 2010 through to July 2013) before the phased increases began should have given employers plenty of time to prepare for the increase. An interesting stumble in the selling of the SG increase, is that the company tax rate was eventually going to fall to 28% which the Government argued would soften some of the SG increase for employers. The promise was that from July 2013, the company tax rate would decrease to 29% (from 30%) and from July 2014, the company tax rate would decrease to 28%. During 2012, the Government announced that the company tax rates would not go ahead.
If you are an employer, please make arrangements early in the current financial year for your employees to now be receiving a 9.5% SG payment rate. And if you would like any assistance with cash-flow budgeting for this increased expense, please contact our office on 07 5482 2855.