As you’re aware, businesses are required to pay eligible employees a minimum level of superannuation, so they have an income when they retire (aka super guarantee or SG).
The current SG is 9.5%, but it’s legislated to increase to 10% on 1 July 2021 and gradually increase by 0.5% each year until it reaches 12% in 20251 (see the table below).
|Period||General super guarantee|
|1 July 2014 to 30 June 2021||9.5%|
|1 July 2021 to 30 June 2022||10%|
|1 July 2022 to 30 June 2023||10.5%|
|1 July 2023 to 30 June 2024||11%|
|1 July 2024 to 30 June 2025||11.5%|
|1 July 2025 to 30 June 2026||12%|
These small increases are predicted to have a big impact on many Australians’ retirement savings, particularly for women and low income earners. These changes are also expected to provide a more comfortable retirement for 50% of Australians in 2050 (double our current proportion) and they should also take the pressure off the government’s future Aged Pension budgets2.
But as we inch closer to 1 July, some organisations like the Grattan Institute (an Australian public policy non-partisan think tank) and the Reserve Bank3 are voicing their concerns.
They argue higher super contributions could mean less in wage increases, as employers can only afford to pay a certain amount in labour costs. So if businesses are putting more into employees’ super, they may have to forgo salary increases.
Living standards could also be impacted if the SG rate is too high, as people will have to allocate more of their wages to super. This means they may have to sacrifice life’s simple pleasures throughout their working life in return for comfort in retirement.
Although there’s some debate concerning the SG increase, research conducted by the Association of Superannuation Funds of Australia (ASFA) in November 20204, found three in four Australians support the initiative.
As many respondents, particularly women and people aged 50 plus, were concerned they would find it hard to live comfortably on the current Age Pension, an overwhelming majority (75%) would welcome the SG increases. This compares to only 12% of those surveyed who thought the super guarantee should remain at 9.5%.
|Increase to 12%||Leave at 9.5%||Unsure|
Source: Utting Research conducted for ASFA, Superannuation and Australians' Expectations, November 20205.
It will be interesting to see what happens over the next four to five months with regard to the SG increase. At this stage, it’s still legislated to go ahead on 1 July and it’s looking likely, but will the government be swayed by the concerns of academics or listen to the Australian people when it comes to future increases? Only time will tell.
1 Australian Taxation Office, Super Guarantee percentage.
2 ASFA, Policy & Research, 12% Super Guarantee.
3 Savings.com.au, 75% of Aussies support 12% superannuation guarantee increase, November 2020.
4 Utting Research conducted for ASFA an online survey of 1,375 Australians with a superannuation account between 1 October and 12 October 2020.
5 Utting Research conducted for ASFA, Superannuation and Australians’ expectations, November 2020.
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