Superannuation Guarantee increased to 9.5% for 2014/2015 year, then stalls for 7 years

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 advanced legislation currently before parliament, 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 Due to negotiations with the Palmer United Party to get the Mineral Resource Rent Tax repealed, the timeframe has now stretched to 12 years.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 is currently law.

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 Proposed rate before Parliament (%) Current law (%)
2012/2013 (starts 1 July 2012) n/a 9.0
2013/2014 n/a 9.25
2014/2015 (starts 1 July 2014) 9.5 9.5
2015/2016 9.5 10.0
2016/2017 9.5 10.5
2017/2018 9.5 11.0
2018/2019 9.5 11.5
2019/2020 9.5 12.0
2020/2021 9.5 12.0
2021/2022 (starts 1 July 2021) 10.0 12.0
2022/2023 10.5 12.0
2023/2024 11.0 12.0
2024/2025 11.5 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 Bill 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.

© Copyright Trish Power 2009-2014

Copyright for this article belongs to Trish Power, and cannot be reproduced without express and specific consent.

IMPORTANT: SuperGuide does not provide financial advice. SuperGuide does not answer all questions posted in the comments section. SuperGuide may use your question or comment, or use questions from several readers, as the basis for an article topic that we publish on the SuperGuide website. We will not disclose names or personal information in these articles. Comments provided by readers that may include information relating to tax, superannuation or other rules cannot be relied upon as advice. SuperGuide does not verify the information provided within comments from readers. Readers need to seek independent advice about their personal circumstances.

Comments

  1. It wasn’t such a pleasant surprise for me to find that my first pay packet of the new financial year has been reduced to fund the extra compulsory employer superannuation contributions.

  2. My employer has decided to reduce my salary to pay for this increase because I’m on a salary package. Is this ok, I have a feeling this is wrong?

  3. Fantastic article. Very clear and concise. Answered all the questions I had and more
    Thanks Trish

  4. Crinkles says:

    Just got an email from the company today. Will be taking a 0.25% haircut as this now has to go to super – with associated decrease in take home pay. Company says those earning less than $75k don’t take the haircut but those earning more do.

    Company says as we are above award there is nothing we can do. Still on individual contract from 2007. APESMA says company is in the wrong and they stand ready to act legally on my behalf.

    0.25% is not much but what about the future 2.75%? We’ll be paying for it ourselves.

  5. Eric Smith says:

    You do all realise that the 0.25% increase will be deducted from your pay and given to your nominated superannuation fund right?

    Unless you are a government employee, on the minimum age or your employer is very generous, expect to receive a pay cut of 0.25% from your gross pay. This is not what the Government publishes or wants private companies to do, but is powerless to stop. I’m certain companies such as Fujitsu and CSC (among countless others) will be conducting themselves in this manner.

    • FYI my large US based employer has decided to fund the .25% increase from July 1. Effectively a .25% pay rise all going into super. Shame all employers don’t do the same.

    • My understanding is that it depends on the wording of your employment contract. Is your contract for a total package? or is it for an amount + Super?

      • We received a company-wide email stating ‘we have decided to fully fund the .25% super guarantee increase’, which implies that it’s at the employer’s discretion & nothing to do with our employment contracts.

  6. My employer just sent out a comms saying this. In line with our current practice, will continue to meet our legal and contractual obligations by making superannuation contributions on your behalf from your Total Fixed Compensation (TFC). This will result in an increase in your superannuation contribution and a marginal decrease in your net take home pay.
    Is this legal???

    • Yes. My understanding is that it is legal. May depend on your employment contract. Is your contract for a total package? Or is it for an amount + Super?

  7. Hi Trish,

    My employer had advised that of the increase of their contribution to 9.25% on 1 July with a corresponding increase in my Total Renumeration Package.
    However they have advised that any further increases in the SG contribution will not result in an increase in my Total Renumeration Package, effectively meaning that the increases will be funded out of my salary.
    Is this how the increases in the SG supposed to work?

  8. awesome! My employer just sent email about this that he is going to increase from 9% to 9.5% from this july. So is it 9.25% instead of 9.5%?

    • Hi Damu
      The super laws only require 9.25% SG contributions from July 2013, but there is nothing stopping an employer contributing more than 9.25%. If you’re also planning to make your own super contributions, be aware that your employer’s contributions and any before-tax contributions you choose to make (that is, salary sacrifice arrangements) count towards the single concessional contributions cap. See SuperGuide website for more information.
      Regards
      Trish

  9. Albert Faure says:

    Great topics and commentary Trish ………………….keep it up.

    It’s a pity though that not all businesses will benefit from the lower coy tax rates, as a vast majority of small business enterprises are unencorporated, and are in the main sole traders or partnerships. This segement of business will still have to shoulder the impost of having to fund increases in SGC, without (as far as I can see) any offset benefit.
    Again great work…..always look forward to reading your Newsletters

  10. Dallas Achilles says:

    Hi Trish
    Thanks for all the valuable info that you provide.
    It is a great and much appreciated community service.

    In regards to the SG changes.
    There is a lot of hype about the figures 9% – 12%.
    But isnt it a fact that all these ‘concessional’ contributions are subject to a 15% contribution tax?
    This in real terms means that your 9% is actually 7.65%.
    Your 9.25% is actually 7.86%.
    Worse still the $50,000 cap on Concessional contributions is really $42500
    Your $25,000 cap is actually $21250.
    There is no mention of this in all the hype. Why?

    • Trent Thompson says:

      Dallas Achilles.

      Thant is a fantastic point that you raise on the topic. quite often people get side tracked and fixate on the trivial issues rather than the one that will actually have an impact on their lives.

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