SUPERGUIDE ALERT: From 1 July 2014, the Superannuation Guarantee rate increases to 9.5% (from the 9.25% that applies for the 2013/2014 year). Based on advanced legislation currently before parliament as at 3 September 2014, the SG rate will remain at 9.5% for 7 years, increasing to 10% from July 2021, and eventually to 12% from July 2025.
Before the 2013 Federal Election, Tony Abbott, announced that if the Coalition won the election, the Superannuation Guarantee increases would be frozen at 9.25% for 2 years, and consequently the full SG increase to 12% would be delayed for 2 years, taking effect from 1 July 2021.
Since winning government, the Liberal government plan to delay the full increase to 12% by another year. Now that’s a negative change to super, and the Liberals promised not to make any unexpected changes to super in the first term.
In the May 2014 Federal Budget, Treasurer Joe Hockey has delayed the full increase even further by allowing the SG increase to 9.5% from July 2014, but freezing the SG rate at 9.5% for 3 years. As a result, the full SG increase to 12% will not take place until the 2022/2013 year.
The previous ALP government legislated a gradual increase in the Superannuation Guarantee rate, starting with an 0.25% increase (from 9% to 9.25%) which took effect from July 2013. The SG rate was then to steadily increase over a 7-year period, to 12% by July 2019.
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 9.25 per cent of an employee’s salary (before July 2013, the percentage was 9%).
The Coalition government are delaying the implementation phase by 3 years, which means the SG rate increases to 9.5% for the 2014/2015 and remains at that rate for the 2015/2016, and 2016/2017 and 2017/2018 years. The SG rate will then increase by 0.5% each year until it eventually reaches 12% by July 2022 (see table at the end of the article).
Background: Originally the Liberals were against the 12% Superannuation Guarantee increase, and then relented and made a public commitment to the historic superannuation increase, once the legislation was passed. Unfortunately, they have had a taste of the ALP’s fiddling at the fringes of super policy. It was only in April 2013 that the Liberal Party promised “We will ensure that no more negative unexpected changes occur to the superannuation system so that those planning for their retirement can face the future with a higher degree of predictability.” That’s right, but they didn’t mean the promise applied to this super change.
According to the Coalition government, by slowing the SG rate increase to 9.5% until June 2018 the government believes it will save $90 million.
Note: In a related policy, the Coalition government is winding back the Low Income Super Contribution (LISC) which refunded the 15% contributions tax for Australians who earn less than $37,000 a year. For more information on the LISC see SuperGuide article – Scrooge alert! Low-income earners hit with extra super tax.
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Source: Calculated by Trish Power, based on 2014 Federal Budget papers, description in explanatory memorandum and exposure draft of MRRT and Related Measures Bill 2013.
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