Wow, this sounds bittersweet, but let’s make it a bit sweeter. We all know about super; however, many of us don’t understand the benefits of well-structured advice within super can provide not only for retirement but here and now. Super is a tax structure, and using appropriate planning can provide many benefits today while building our wealth for the future.
Let me share some information to provide you with some valuable insight into what has changed.
The super guarantee (SG) is the minimum percentage of ordinary earnings that employers must contribute to superannuation for their eligible employees.
After years being stuck at 9.5% the SG rate is on the move again. It increased from 9.5% to 10% on 1 July 2021, and will increase by a further 0.5% each year until it reaches 12% from July 2025.
More money into super to provide a more secure retirement? What’s not to like about that?
Well, it depends on your employment contract as to whether you are in for a welcome bonus or a nasty surprise when each annual increase in the SG kicks in.
Salary plus super, or super included?
If you are paid a base rate plus super then your employer should increase your super contributions by 0.5% with no change to your take-home pay. This is the likely to be the most common (and the best) outcome. It’s possible some employers may take the increases in SG into account when negotiating future wage increases, but this is an indirect and by no means certain outcome.
It’s a different story if you are paid on the basis of a total package, including super. In this case, and provided it doesn’t drop your pay rate below award minimums or the minimum wage, your employer may deduct the additional SG from your take-home pay. Not such a desirable outcome.
What can you do about it?
Just because an employer can reduce take-home pay to make up for the higher SG doesn’t mean they will. Many employers will wear the cost, and if that’s the case with your employer, all well and good. Also bear in mind that employers may use both types of contract, so just because your colleague at the next desk is paid on a salary plus super arrangement, you may not be.
With the outcome entirely up to your employer it’s important to talk to them. Find out if you are affected, what they plan to do, and if necessary see if you can negotiate an appropriate increase to your total package. If you have union representation this may be helpful.
It will all come down to the strength of your bargaining position. Employers who want to keep good employees and avoid the cost of employee turnover may be more willing to carry the cost of the increase. It’s also possible for your employer to take one approach this year and another next year, depending on business conditions.
While the drop in take-home pay after the initial SG increase may be relatively small, by 2025 it will be a much greater amount. It’s important to have that conversation with your employer as soon as possible.
To take advantage of the many opportunities available, call one of the specialist super advisers to design a personalised strategy for you.