Superannuation Changes: What’s Happening and Who’s Affected

australian superannuation

Superannuation guarantee is set to rise from July 1. The legislated amount that an employer must contribute to an employees retirement savings is getting a slight boost that will continue to rise over the next few years.

From the classic, mandatory 9.5%, which has stood since 2014, the government will increase superannuation contributions by 0.5% each year until reaching 12% in 2025.

July 1 will see the first step in this superannuation rise, with contributions growing to 10%.

However, questions are being raised over who exactly should – and will – end up paying for this increase and whether or not it’s a great idea to start with.

On the surface, the plan seems like a good one. After all, who wouldn’t want more money for their retirement? Unfortunately, it’s not that straightforward and superannuation, tax, and retirement savings are very, very complicated.

Multiple factors and interests are at play here but the short of it is that superannuation rises may be a trade-off the government is willing to grant in exchange for wage growth.

The increase in revenue to superannuation funds run by big banks through maintenance fees is not a bad outcome for them either.

Who Pays?

Employees have their super either paid in addition to their base salary or paid inclusive of their total package.

It’s those in the second category that could be worse off as the changes are implemented.

An extra half a per cent into super each year is a big ask for employers at any time, but right now seems like a particularly big stretch for businesses still recovering from the ongoing COVID-19 pandemic.

Employers will be looking for ways to avoid having to shell out more to accommodate the legislated changes. They could end up taking money allocated for wage increases year-on-year and putting that toward super guarantees.

Employment lawyers have also said that if an employee’s contract states that super is included in their total package, it might be legal for their boss to take that money out of their base pay.

“Provided the employees don’t drop below the minimum permitted wages in an award enterprise agreement, or the minimum wage, then yes, it is permitted,” Hall & Wilcox partner Fay Calderone told the ABC.

Calderone says there is a history of employers not passing the increases onto workers.

“The businesses in the middle — where they are large enough where they’ve had their contracts prepared — they’ve had the history behind them where this has happened before,” she says.

Research firm Mercer recently surveyed 145 organisations to find out how they intend to pay for the increased rate of super.

62% of organisations using the “base plus” model are reported to be maintaining their employees’ take-home pay, with the employer meeting the full cost of the increase in employer super contributions.

However, two-thirds of organisations using the “total package” approach have indicated they will be passing on at least some of the cost to their employees.

Huge Australian companies like Telstra, AGL, and ANZ have indicated that their workers will essentially be facing a pay cut as the super changes come in on July 1.

It’s Always Been You

If you think about it, superannuation guarantee has always been part of the total remuneration package that employers must consider when paying their staff.

That money is your money whether you can access it now or not. Fiddling around with the proportion you can access now or later is still just playing around with employees own salaries.

Paul Keating, then prime minister when compulsory super was introduced in 1992, said in 2007 in a reflection on the history of superannuation that;

“The cost of superannuation was never borne by employers. It was absorbed into the overall wage cost.”

As wages continue to stagnate, even in the face of marginal minimum wage increases, super has become a stand-in for real wage growth.

As last year’s retirement income review revealed, the “weight of evidence suggests the majority of increases in the super guarantee come at the expense of growth in wages”.

According to Peter Martin, Visiting Fellow at the Crawford School of Public Policy, the “best thing to do would be to abandon the 12% target. It’s neither something we need nor something that would help us at the moment”.

Failing that, Martin suggests giving workers the option of having the 0.5% super increase paid into their wages.

For an employer, “it’ll make no difference which account it goes to” but, for Australians short of income at the time they need it, and an economy needing wages and spending, “it might make a difference”.

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