An explanation of the superannuation guarantee for 2014
In 2012, the Federal Government announced changes to the Superannuation Guarantee (SG) Act, which outlines the minimum contribution levels most employers are required to comply with for eligible employees. Subsequently, additional changes have bene made to the minimum rates payable. These changes increase the minimum super payment most employees will receive – rising from the 2012 level of 9%, gradually increasing each year to reach 12% by 1 July 2022. We’ve reproduced (below) a summary of the main points from a 2012 report by the Association of Superannuation Funds of Australia (ASFA), one of AvSuper’s main industry representation and lobby groups, which outlines the rationale for the SG increase, to assist AvSuper members in better understanding the change.
Many AvSuper members already enjoy super contributions higher than the prescribed minimum, which is an important step towards funding a retirement lifestyle that is less reliant on the Government’s aged pension system.
While overall we view this as a necessary and valuable improvement to the super system, the AvSuper Trustee remains concerned that Federal Government deferred increases in the concessional contributions cap limits, which means that a small number of AvSuper members may not get the purported benefits of the SG increase due to the higher tax on super they may pay (if their total annual concessional contributions exceed $25,000 as a result of these changes). We’ll continue to provide our views to Government on this issue on your behalf and keep you informed along the way.
Chief Executive Officer
ASFA: We cannot ignore the demographic challenge
Today there are five working people to support each Australian aged 65. By 2050, this is projected to drop to 2.7. While there are many uncertainties about the future, one thing that’s clear is there will be increasing pressure on Government budgets due to our ageing population. It therefore makes sense to do what we can today to prepare for the future.
The AvSuper Trustee agrees this is a significant issue which requires Government support.
ASFA: An increase in SG addresses community concern
ASFA’s market research demonstrates that ‘having enough to retire on’ is the number one financial concern of Australians. Increasing the superannuation guarantee is popular amongst all age groups, but significantly 75 per cent of young workers strongly agree that increasing the Superannuation Guarantee will improve their retirement.
Anecdotally, AvSuper members provide consistently positive feedback about the SG and it seems well regarded in principle as the basis of their financial planning for retirement. Unsurprisingly, like much of the population, AvSuper members seem to share the view that ‘having enough to retire on’ is a key financial concern.
ASFA: Nine per cent SG is not enough
While superannuation balances will continue to grow over coming years, Australians on average are still not contributing enough to deliver the standard of living in retirement they want and deserve. Based on the expenditure needs in ASFA’s retirement standard, taking into account the availability of the Age Pension, a single retiree needs an account balance of about $430,000 in today’s dollars to support a comfortable retirement while a couple needs around $510,000. Nine per cent of super will not be sufficient to achieve this comfortable standard of living in retirement. Twelve per cent or more is necessary.
Many AvSuper members are already receiving 12% or more SG, as well as making additional personal contributions, so are perhaps better placed than many to meet these retirement needs targets. Make an appointment with one of our Member Advice Consultants to check how you are tracking towards your retirement.
ASFA: An increase in SG is affordable for employers and employees
The Government’s proposed increase in the Superannuation Guarantee is affordable for both employers and employees because it is spread out over many years. It will be taken into account during the consideration of future wage increases. Employers are not expected to face any sharp increase in labour costs as a result of this increase and employees will not face any cut in take-home pay. Already around 25% of employees already receive more than nine per cent contributions.
The AvSuper Trustee considers the question of affordability remains one for employees and their employer to determine, although we are pleased to see the increase proposed for implementation in modest increments over several years which should reduce some of the financial impact for employers. It is not yet clear if the SG increase will be offset against future wage increases or will significantly influence wage negotiations in all industries. We suspect that this may not happen, or not happen consistently across a number of different industries or employee groups. We are also disappointed the Government has not seen fit to increase the concessional contributions limits to match the SG increase – this will see some members subject to more tax. We continue to campaign to the Government on this issue.
AvSuper’s Trustee also gives broad agreement for the following AFSA comments supporting the SG increase.
ASFA: An increase in SG is affordable for Government
Over time, the foregone PAYE tax revenue will be offset by the increased revenue from taxation on super fund earnings.
ASFA: The importance of compulsion
Compulsory super ensures Australians do not leave saving until it is too late. Saving throughout a working life reduces the risk of impact of economic and health events that can reduce an individual’s ability to earn income. Across their working lives, individuals accumulate retirement funds, benefiting along the way from compound interest and investing across economic cycles.
ASFA: The Australian super system is well regulated
Australia’s super system is well regulated. Super funds invest for the long term. The global investment market is volatile but superannuation represents the best way to plan for the future by investing based on sound investment principles.
ASFA: Superannuation supports the Australian economy
The accumulation of super does not just assist Australians in planning for retirement – it also boosts the Australian economy, increasing the nation’s GDP and creating jobs that support Australians in their working lives. Australia’s accumulated super funds provide much-needed private and public infrastructure investment.
Email: firstname.lastname@example.org | Freecall: 1800 805 088 | Phone: 02 6268 5073 | www.avsuper.com.au
This information is of a general nature only and does not take into account your personal objectives, situation or needs. Before making a decision about AvSuper, you should consider your own requirements and the relevant Product Disclosure Statement (PDS). For a copy call us or visit the AvSuper website, www.avsuper.com.au. AvSuper Pty Ltd (ABN 46 050 431 797, AFSL 239078) is the Trustee of the AvSuper Fund (ABN 84 421 446 069). FS0901.5 11.2014