From 1 July 2014, the Superannuation Guarantee rate increased to 9.5% (from the 9.25% that applies for the 2013/2014 year). Based on new laws, the SG rate will remain at 9.5% for 7 years, increasing to 10% from July 2021, and eventually to 12% from July 2025 (see table below).
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 (which was 9.25% for the 2013/2014 year).
In the 2014 Federal Budget, the planned increase in Superannuation Guarantee contributions from 9.25% to 12% over the next 5 years has been rejigged by the Liberal government, stretching the timeframe to 8 years. Due to negotiations with the Palmer United Party to get the Mineral Resource Rent Tax repealed, the timeframe has now stretched to 12 years.
Effective from 1 July 2014, the Superannuation Guarantee percentage increased 9.5%, and will expected to rise to 12% by July 2022 (already extended from July 2020) under the Liberal government, rather than the original starting date of 2019, planned by the former ALP government and what was in place before the Liberals pushed back the starting date.
Note: In short, the SG rate will now remain at 9.5% until 30 June 2021, and will increase to 12% by 1 July 2025.
The Liberal government, in making a downward adjustment in how fast the SG rate will increase over time means that it will take 5 years longer for the SG rate to increase to 12% from the Liberals pre-election commitment, and 7 years longer than originally planned by the ALP .
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 introduced amendments to slow down the increase in the SG rate, and then in negotiations in parliament, further slowed down the SG increase.
The Liberal government promised 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. What the Liberal government is now introducing is that the SG rate will stall from 1 July 2015 for 7 years (until 30 June 2021), and then increase by 0.5% each year following until SG reached 12% from 1 July 2025.
Superannuation Guarantee entitlements
|Financial year||New SG rates (%)||Old SG rates (%)|
|2012/2013 (starts 1 July 2012)||n/a||9.0|
|2014/2015 (starts 1 July 2014)||9.5||9.5|
|2021/2022 (starts 1 July 2021)||10.0||12.0|
|2025/2026 (starts 1 July 2025)||12.0||12.0|
Source: Adapted from explanatory memorandum for Mineral Resource Rent Tax Repeal and Other Measures Act 2014
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 12 years, because the full 3% increase takes affect from the start of the 2025/2026 year –in 12 years’ time., rather than in 5 years’ time as the law passed by the ALP government stands.
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 former ALP Government announced that the company tax rates would not go ahead.
In the 2014 Federal Budget, the Liberal government announced a drop in the company tax rate by 1.5%, but an offset levy for large companies of 1.5% to help finance the Paid Parental Leave levy. Smaller companies however will not have to pay the PPL levy, so will benefit financially from the drop in company tax rate. The PPL levy in its current form is now in doubt.