Starting July 1, 2024, the superannuation guarantee in Australia will increase from 11% to 11.5%. This change is part of a broader plan to raise the superannuation guarantee to 12% by July 1, 2025.
What is the Superannuation Guarantee?
This legislative adjustment is designed to bolster retirement savings for Australian workers, ensuring a more secure financial future. Here’s everything you need to know about this change and its implications.
The superannuation guarantee is a mandatory system where employers are required to contribute a portion of their employees’ earnings into a superannuation fund, which is a retirement savings account. This system aims to ensure that workers have sufficient funds to support themselves financially when they retire.
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Incremental Increase: The Path to 12%
The increase from 11% to 11.5% is part of a scheduled plan to gradually elevate the superannuation guarantee to 12% by July 2025. This phased approach aims to minimize the financial impact on businesses while gradually enhancing retirement savings for workers.
Impact on Workers
The increase in the superannuation guarantee will significantly boost the retirement savings of Australian workers. For instance, a 25-year-old worker who has just graduated from TAFE and started their first job with an annual pre-tax salary of $78,000 will see a notable difference in their retirement savings. According to Australian Super, this worker will have an additional $26,000 by the time they retire at 67 due to the increase in the super guarantee from 11% to 11.5%. If the guarantee remained at 11%, their retirement balance would be $547,000, compared to $573,000 at the 11.5% rate.
“This is good news for workers receiving superannuation,” said AustralianSuper chief executive Paul Schroder. “We believe increasing the super guarantee to 12%, as has been legislated, is in the best interests of members, as this means working Australians will have more money in retirement.”
Impact on Businesses
While this increase is beneficial for employees, it presents challenges for businesses, particularly small and medium-sized enterprises (SMEs). Nearly two-thirds of small businesses identified the rising superannuation guarantee as their most significant regulatory challenge, according to a May survey by Scottish Pacific Bank.
Jon Sutton, chief executive of ScotPac, highlighted the specific difficulties faced by SMEs: “In the current economic climate, SMEs are particularly sensitive to any cashflow and administration impacts associated with regulatory change, which explains why the super guarantee is a particular pain point. Unlike large corporations, SMEs generally don’t have dedicated teams to interpret regulatory changes, implement compliance measures, and redraft company budgets.”
Additional Changes: Superannuation Contribution Caps
Alongside the increase in the superannuation guarantee, contribution caps are also set to rise on July 1, 2024. The before-tax contribution cap will increase from $27,500 to $30,000, and the after-tax contribution cap will rise from $110,000 to $120,000.
“An increase in contribution caps should translate into greater flexibility for individuals to bolster their retirement savings,” said an accounting firm William Buck. “Whether through salary sacrificing, personal deductible contributions, or non-concessional contributions, individuals now have an opportunity to contribute more towards securing their financial future.”
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However, individuals must navigate complexities introduced by the general transfer balance cap, which remains unchanged at $1.9 million. Unlike contribution caps, which are based on wages, the transfer balance cap is indexed to inflation. This disparity can introduce challenges for individuals trying to maximize their superannuation benefits.
Superannuation on Paid Parental Leave
Another significant change coming in July 2025 is the government’s decision to start paying superannuation on paid parental leave. This policy aims to address the gender gap in retirement savings, as women often have lower superannuation balances due to career breaks for raising children. By including superannuation contributions during paid parental leave, the government hopes to enhance retirement savings for parents taking time off work to care for their children.
Conclusion
The increase in the superannuation guarantee to 11.5% from July 2024 marks a significant step towards enhancing the retirement savings of Australian workers. While this change presents challenges for businesses, particularly SMEs, it ultimately aims to provide a more secure financial future for employees.
With the additional increase to 12% scheduled for 2025 and the introduction of superannuation on paid parental leave, these measures collectively represent a comprehensive approach to improving retirement outcomes for Australians. It is crucial for both employees and employers to stay informed and adapt to these changes to maximize their benefits and ensure compliance with the new regulations.
