The Superannuation Guarantee (SG) rate rose to 10.5% on 1 July 2022. The SG increase means changes to your payroll and the amount of super paid to your workers.
Background – SG increase
The SG rate has been 10% since 1 July 2021. From 1 July 2022, it is 10.5% and is legislated to increase incrementally each financial year until it reaches 12% in 2025.
For managers of a business or those who facilitate the payment of staff, these changes will affect the amount of super you pay your workers.
SG increase to 10.5%
If you manage a business or payroll, you will need to check you are paying eligible workers at a minimum 10.5% super.
The rise is a segment of a plan to increase the SG to 12% by 2025 and better support working Australians financially in retirement.
What the SG increase means for your business
The critical change to your business is that you’ll need to pay workers 10.5% super, which will affect your payroll. You can still pay super through a clearing house if that is your preferred method.
Advise your staff of this change and make sure they check their payslips and super contributions. Changes in the super system are an excellent time to remind employees to review their super accounts and balances. Super is an ongoing component of their financial future.
A lot can happen in life, from when you start working until you retire. For example, you may get married, start a family, or buy a property. Major life events impact your finances and are also pertinent times to review your super: its performance, the fees you pay, and how your retirement money is accumulating.
Your super will support you in retirement. It is a component of your long-term financial plan. For instance, you could be paying into your super for over 40 years and using it to support your retirement for over 20 years.
The decisions you make throughout your working life could significantly affect your final balance. So let’s look at four life events to indicate when reviewing your super can be a good idea.
If you have any questions about the rise in the SG and how it may financially impact your business over the coming years, consider speaking to your financial adviser.
The rise is a significant help to working Australians who will now avail of increased retirement savings. Although, it may be an additional financial obligation for some businesses. We would suggest business owners plan correspondingly for the new commitment and seek advice from their financial adviser to help guide their business and its employees.
Under the SG of 10.5%, for an employee earning $60,000 their super payments would increase by $300 a year, from $6,000 to $6,300.
Four key times to evaluate your super
1. When a relationship becomes serious
Most people don’t talk about super when they begin a relationship. But, as a relationship progresses, you may want to consider your super as a joint asset. It is legally positioned as a joint asset when de facto or married couples split or divorce.
While you can’t combine two super accounts or have a joint account, you can contribute to each other’s super, called a spousal contribution. Many consider adding to their partner’s super if they take a break from work. These additional contributions can help you succour the growth of each other’s balance.
You may also want to inquire if you have nominated a beneficiary for your super. The beneficiary is the person who will inherit your super, and any insurance entitlements when you pass away.
2. Changes in your spending – buying a new house or starting a family
Significant changes in your spending, such as buying a house or having a baby, can be an excellent time to review the insurances in your super. While this is an exciting and momentous time in your life, it also means new financial responsibilities.
Your insurance is purposed to help you manage your financial commitments if you need to take time out of the workforce because of temporary or permanent disablement (TPD). For many people, the highest cost is a mortgage or family. Your insurance can also help your family financially if you pass away unexpectedly. While it’s challenging to think about, planning is essential.
Insurances included in your super may be Income Protection, TPD, and Death Cover. The appropriate level of cover for your lifestyle is essential; as your life changes, the level of cover you need will also change.
Review your insurance to ensure your financial needs, including unforeseen events, are included. For example, if you could never work again, would your total and permanent disability insurance be enough to cover your lifestyle expenses and additional health care needs..
More than 70% of Australians that have life insurance have it via their super fund.
3. Changing jobs
A salary increase from a new job can be an excellent time to contemplate topping up your super.
Salary sacrificing is making voluntary payments. And adding a little bit extra each month can help you save more for retirement and could have tax benefits.
Being stood down or made redundant
Losing a job is also a pivotal time to check in with your super. First, check what fees you’re paying and ensure you don’t have multiple funds. Consolidating your super into a single account means that you will pay a single set of fees and know where your super is. If you are considering combining accounts, consult a financial advisor for information regarding any fees or charges that may apply. For example, exit fees or waiting periods on new insurance.
4. Financial windfall
Sudden wealth from work bonuses, inheritance or even a lottery win can improve your financial situation and therefore, you may choose to top up your super. The sooner you add to your super, the more significant benefit you will receive from any investment returns and compound interest. These additional benefits leave you better off at retirement. There are limits to the amount that you can add to your super each year. Make sure you consult a financial adviser to understand the contribution cap limits and any tax implications. Speaking to your super fund for general guidance or a financial adviser for personal advice may be helpful.
A long-term investment
Super is a long-term investment and requires reviewing throughout life.
Reviewing your insurance, nominating your beneficiaries and checking your super performance are simple things you can do to ensure your super is on track for your best retirement.
12% SG 2025 – small increases equal significant benefits
The SG is an integral part of the superannuation system, and all accumulate to support you financially in retirement.
Although it has yet to wholly mature, Australia’s superannuation system is already among the best in the world to provide Australians with their best possible retirement.
The first ever SG rate was 3% on 1 July 1992 and rose to 9% in the following ten years. However, in the 19 years following until 30 June 2021, it only rose 0.5%.
In 2013 the government legislated that an incremental increase in the SG rate would begin from 1 July 2021. As of that date, the rate increases slowly by half a per cent each year until it reaches 12% SG in 2025. While such a slight increase may not sound like much, over time, it could significantly impact your retirement savings.
Gradually increasing the SG to 12% by 2025 means Australians may not have to work as long to save the same amount for retirement.
Even small increases to the SG will instigate a big difference in the long run.
Australians are living longer and not having as many children. Therefore, the ratio of Australians working to those in retirement will almost halve over the next 40 years.
There will be fewer working people paying taxes to support things like the Government Age Pension, and a lot more people are likely to rely on part or all of the age pension once in retirement.
For Australia to afford to uphold the Government Age Pension, workers may have to pay more tax. The alternative is that retired people may receive less pension. Raising the SG to 12% will increase members’ savings in retirement, taking some of the pressure off the overall government budget and economy.
Having more super will help the current generation and the generations that follow.
Paying the new SG rate
The new rate came into effect on 1 July 2022. You may have a payroll cycle that overlaps this period. To calculate the super owed, the ATO advises the salary payment date that determines the SG payable rate. Not the date the employee completed the work. Therefore, if a worker is paid in July 2022 for work completed in June 2022, then the 10.5% SG rate applies.
Choose the right super fund.
With 10.5% of employee salary or wages going to super for retirement, they must seek advice from a financial professional to choose a fund with strong, long-term investment performance and low fees. Comparing funds can be an excellent place to start.
Vogue Advisory Group – helping you grow and protect your wealth
Contact Vogue Advisory Group, and one of our Financial Advisors can assist you in learning more about the work to which the new SG rate applies.