ATO, Industry News

Changes to Superannuation

By Paolo Coniglio, 25.05.2021

Changes to Superannuation

Super Guarantee Increase

The Government’s commitment to ensure that all Australian Citizens receive their fair savings for retirement through their Superannuation funds is set to continue. With the rollover of Single Touch Payroll to all Australian Employers now behind us, the Australian Government is now planning to make radical changes to Superannuation to improve retirement outcomes for all Australians.

The planned changes include a set increase to the statutory rate of Superannuation up to 12% within the next 5 years, the removal of the minimum monthly threshold and the increase of the Annual Caps.

Superannuation Guarantee First Statutory Rate Increase

From the 1st July 2021, the Statutory rate of the Superannuation Contribution Guarantee will increase from 9.5% to 10%.

The increase applies to all Employees and Sub-Contractors deemed as Employees under the Superannuation Guarantee Ruling (SGR 2009/2) from the first pay period paid in July 2021 (even if the period worked is in June).

Employee Types and Remuneration Packages

The increased rate will have a different impact on Australian Employees and Employers, based on the type of Salary Package stipulated in their Employment Agreement.

There are four possible case scenarios:

  1. Award Based Employees paid an hourly rate.
    These Employees will simply receive an increase in their Superannuation Guarantee whilst their pay rate will be unaffected.
  2. Employees paid above Award where the Employment Agreement stipulates that the Pay Rate or Annual Salary is paid exclusive of Superannuation.
    Similar to Award Based Employees these Employees will also receive an increase in their Superannuation Guarantee without an impact on their pay rate / gross salary.
  3. Employees paid above Award where the Employment Agreement stipulates that the Pay Rate or Annual Salary is paid inclusive of Superannuation (Total Remuneration Package).
    In this case, the Employer could choose to either increase the Superannuation Rate without decreasing the pay rate / gross salary or to keep the Remuneration Package the same by shifting the additional 0.5% from the Pay Rate into the Superannuation Guarantee.
    Note: unless the decrease of 0.5% from their Hourly Rate will set their Pay below the Pay Rate classified under their Award.
  4. Employers who already pay a higher percentage of Superannuation
    Employers who already pay 10% or more of Superannuation Guarantee are not obligated to increase their current rate by 0.5% as they already pay the minimum statutory rate as set out by the Super Guarantee Ruling.

Superannuation Limits & Thresholds

Superannuation Contribution Quarterly Limit

The maximum superannuation contribution base has increased to $58,920 income per quarter for the Financial Year 2022.

Concessional and Non-Concessional Contribution Caps

The Concessional (before-tax) and Non-concessional (after-tax) Contribution Caps are also set to increase from the 1st July 2021. This is the first increase since July 2017:

• The Concessional Contribution Cap is increasing from $25,000 to $27,500 per annum;

• The Non-concessional Contribution Cap is increasing from $100,000 to $110,000 per annum.

Finally, the maximum amount a member, who was under 65 at the start of the year, can contribute under the Non-concessional Contribution Cap Bring-forward Rule will increase from $300,000 to $330,000 per annum.

Future Changes to Superannuation

Future Superannuation Guarantee Increases

Australian Employees are set to receive an increase to the Super Guarantee Statutory Rate of 0.5% each year until 2025, where the rate will settle at 12%.

The Retirement Income System Review Bill, which set out the Superannuation Statutory rate increase to 12% by 2025, officially passed into law in November 2020. Therefore, unless the Government proposes new legislation to counteract these changes, Australian Employers are set to budget a 4% increase in Superannuation cost in the next 5 years.

Historically this will be the most significant increase in Superannuation since its introduction in 1992.

$450 Superannuation Monthly Threshold

Another measure announced in the latest Federal Budget is the intention to remove the $450 super monthly threshold to guarantee access to Superannuation to a wider range of Employees. This measure is part of the ‘Supporting the Economic Security for Women‘ initiative.

Currently, Employers only have to pay Superannuation if the Employee earns more than $450 per month. However, once the Employee earns over this threshold, Superannuation is calculated and paid on all wages in that month.

If the proposed changes pass into legislation, this will take effect from 1st July 2022.

Superannuation Stapling Rule

The Australian Government announced in the 2020 Budged the intention of introducing a new Superannuation Rule called the ‘Superannuation Stapling Rule’ as part of the Federal Government initiative: “Your Future, Your Super“.

This legislation addresses the issue of unintended creation of multiple Superannuation accounts, which commonly happens when employees frequently change jobs and they omit to provide their Superannuation details to their new Employer.

To prevent Employees from having different Superannuation accounts, causing them to erode their retirements funds, the Australian Government is planning to ensure that an existing Superannuation account will follow the Employees from job to job (referred to as ‘Stapling’) unless the Employees willingly wish to open a different fund.

Currently, if a new Employee does not choose or nominate a Superannuation Fund, the Employer is required to open a new Superfund account using their Default / Nominated fund. However, if the Superannuation Stapling Rule passes, Employers will be required (potentially via Single Touch Payroll) to determine what fund the Employee has ‘stapled’.

A stapled fund is either the last Superannuation fund that contributions were made to on the employees’ behalf or the fund that has the largest account balance (if they have several funds).

The Government estimates that stopping the creation of unintended multiple accounts will boost balances in super by about $2.8 billion over the next decade.

This reform, however, comes with many anticipated shortcomings, including an additional burden of responsibility for Employers and the risk of employees being ‘stapled’ to underperforming funds.

The Super stapling rules were proposed to become effective on the 1st of July 2021, however, the legislation has not yet passed.

Increased Age Limit to the Non-concessional Contribution Cap Carry-forward Rule

Finally, the Government plans to raise the maximum age limit to access the Non-concessional Contribution Cap Carry-forward Rule from 65 to 67 years old. The proposed legislation is currently before the House of Representatives and yet to be enacted into law. The Government has also proposed a range of flexibility ruling to facilitate access to Superannuation for older Australians, the most relevant is the planning of repealing the work test for voluntary concession contribution for those workers aged between 67 – 74.

More information is available on this Factsheet.

Action Steps

Employers should ensure they make the necessary plans to maintain compliance with their Superannuation obligations. Some of the key action steps should include:

  • Review the setup of their Payroll System and ensure their Superannuation Pay Items configuration is updated as per the latest applicable rates and thresholds.
  • Review their Employment Agreements and check if the Super Guarantee rate has been stated as 9.5%, and provide an Agreement amendment to their Employees, if necessary.
  • Review of the wording on the Employment Agreement for Employees on a Total Remuneration Package if they plan to shift the 0.5% from the Pay Rate into the Superannuation. It is also advisable they seek legal advice prior to making any decision.
  • Notify their Employees about the changes to the Superannuation rates and thresholds and detail how these changes will impact them.
  • Review and re-negotiate the pay agreements with their Sub-contractors to determine how the new Superannuation rate will be calculated on their invoices after the 1st July 2021.

References

https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?anchor=Superguaranteepercentagehttp://classic.austlii.edu.au/au/legis/cth/consol_act/fwa2009114/s15a.html

https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?anchor=Superguaranteepercentage#Superguaranteepercentage

https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?anchor=Concessionalcontributionscap#Concessionalcontributionscaphttps://www.fairwork.gov.au/employee-entitlements/national-employment-standards/casual-employment-information-statement

https://treasury.gov.au/publication/p2020-super

https://treasury.gov.au/publication/p2020-100554?inf_contact_key=3aa12c71ffa6a12582cf4eb228e473cfd18a532c4142cb79caf2b269de1401fa

https://archive.budget.gov.au/2020-21/factsheets/download/your_future_your_super_factsheet.pdf

https://budget.gov.au/2021-22/content/factsheets/download/factsheet_super.pdf

https://budget.gov.au/2021-22/content/download/glossy_overview.pdf

Disclaimer

This blog and attached resources are of general nature designed for informational and educational purposes only. They should not be construed as professional financial advice for your individual business. Should you need such advice, consult a licensed financial or tax advisor.

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