Government cracks down on unpaid super

Government cracks down on unpaid super

If you’re one of the 3 million Aussies who have been shortchanged on super contributions, you’re in luck.

Legislation is being introduced by Financial Services Minister Kelly O’Dwyer that will prevent companies from reducing the amount of superannuation contributions they pay workers if they choose to salary sacrifice.

These amendments will also force employees to pay back workers their full superannuation entitlements.

What is a salary sacrifice?

Salary sacrificing refers to an agreement made with your employer to put some of your pre-tax salary towards certain benefits which reduce your taxable income. This can be a competitive option for employees, as contributions are generally taxed at 15 per cent.

The move has come following a Freedom of Information request by The Australian that revealed a confidential interagency report into billions of dollars’ worth of annual unpaid super.

This has forced the federal government to immediately act, pledging to move on a recommendation contained in the report that will prevent businesses reducing the super entitlements they contribute for workers who choose to salary sacrifice.

These amendments come at an ideal time, as in December 2016, Industry Super Australia and Cbus Super released a report predicting that if this was not resolved, the rate of unpaid superannuation would reach $66 billion by 2024.

The report also calculated that a staggering $3.6 billion in retirement savings is being lost, and 2.4 million Aussies are affected annually.

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Am I being paid less super?

Employers are legally required to pay 9.5 per cent of ordinary time earnings in superannuation towards every employee over the age of 18 earning more than $450 a month. This is the super guarantee.

Under the current Superannuation Act, there is no distinction between contribution from ­salary sacrificing or an employer contribution. This means that companies can either count the salary sacrifice as part of their own payments, or calculate your 9.5 per cent super guarantee payments at the post-sacrifice salary level.

Example

If your income is $100,000 a year your employer is legally entitled to pay 9.5 per cent of this as superannuation. This equates to $9,500 in super a year. If you chose to salary sacrifice an extra $200 a month (or $2,400 a year) on top of your 9.5 per cent, your contributions would equate to $11,900 annually. Under the current Superannuation Act, an employer could calculate your income as actually $100,000 minus your contribution amount of $2,400, equalling an income of $97,600 a year. They would then only have to pay 9.5 per cent of $97,600 into superannuation, so you miss out on thousands over your working life.

Industry Super Australia isn’t convinced

In a press release issued today, Industry Super Australia’s public affairs director, Matt Linden, stressed that this will only help one in 10 affected by unpaid superannuation, and greater urgency and a more comprehensive approach is needed.

“Amending the law to require employers to pay super more frequently – at least monthly but ideally at the same time as wages – is essential to stop super payments being used for business cash flow. 

“Also essential is a policy decision from government to include small businesses in Single Touch Payroll to enable real-time tracking of payments, and collection of ordinary-time earnings data to verify amounts paid are correct. 

“Without taking these extra steps, millions of Australians will continue to be shortchanged billions in super, with the Government having to pick up the tab with higher age pension costs,” said Mr Linden.

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Learn more about superannuation

How does superannuation work?

Superannuation is paid by employers to employees, at least once every three months. The ‘superannuation guarantee’ is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary. The guarantee is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Superannuation is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

You can withdraw your superannuation when you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

 

How much is superannuation in Australia?

Superannuation in Australia is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Is superannuation taxed?

Superannuation is taxed. It is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

How is superannuation calculated?

Superannuation is calculated at the rate of 9.5 per cent of your gross salary and wages. So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

What happens if my employer falls behind on my superannuation payments?

The Australian Taxation Office will investigate if your employer falls behind on your superannuation payments or doesn’t pay at all. You can report your employer with this online tool.

What are reportable employer superannuation contributions?

Reportable employer superannuation contributions are special contributions that an employer makes on top of the regular compulsory contributions. One example would be contributions made as part of a salary sacrifice arrangement.

How can I increase my superannuation?

You can increase your superannuation through a ‘salary sacrifice’. This is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Like regular superannuation contributions, salary sacrifices are taxed at 15 per cent when they are paid into the fund.

How do you calculate superannuation?

Superannuation is calculated at the rate of 9.5 per cent of your gross salary and wages. So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

How do I change my superannuation fund?

Changing superannuation funds is a common and straightforward process. You can do it through your MyGov account or by filling out a rollover form and sending it to your new fund. You’ll also have to provide proof of identity.

Can I choose a superannuation fund or does my employer choose one for me?

Most people can choose their own superannuation fund. However, you might not have this option if you are a member of certain defined benefit funds or covered by certain industrial agreements. If you don’t choose a superannuation fund, your employer will choose one for you.

How many superannuation funds are there?

There are more than 200 different superannuation funds.

How long after divorce can you claim superannuation?

You or your partner could be forced to surrender part of your superannuation if you divorce, just like with other assets.

You can file a claim for division of property – including superannuation – as soon as you divorce. However, the claim has to be filed within one year of the divorce.

Your superannuation could be affected even if you’re in a de facto relationship – that is, living together as a couple without being officially married.

In that case, the claim has to be filed within two years of the date of separation.

Either way, the first thing to consider is whether you’re a member of a standard, APRA-regulated superannuation fund or if you’re a member of a self-managed superannuation fund (SMSF), because different rules apply.

Standard superannuation funds

If your relationship breaks down, your superannuation savings might be divided by court order or by agreement.

The rules of the superannuation fund will dictate whether this transfer happens immediately, or in the future when the person who has to make the transfer is allowed to access the rest of their superannuation (i.e. at or near retirement).

Click here for more information.

SMSFs

If your relationship breaks down, you must continue to observe the trust deed of your SMSF.

So if you and your partner are both members of the same SMSF, neither party is allowed to use the fund to inflict ‘punishment’ – such as by excluding the other party from the decision-making process or refusing their request to roll their money into another superannuation fund.

This no-punishment rule applies even if the two parties are involved in legal proceedings.

Click here for more information.

Financial consequences

Superannuation funds often charge a fee for splitting accounts after a relationship breakdown.

Splitting superannuation can also impact the size of your total super balance and how your super is taxed.

Click here for more information.

What is a superannuation fund?

A superannuation fund is an institution that is legally allowed to hold and invest your superannuation. There are more than 200 different superannuation funds in Australia. They come in five different types:

  • Retail funds
  • Industry funds
  • Public sector funds
  • Corporate funds
  • Self-managed super funds

Retail funds are usually run by banks or investment companies.

Industry funds were originally designed for workers from a particular industry, but are now open to anyone.

Public sector funds were originally designed for people working for federal or state government departments. Most are still reserved for government employees.

Corporate funds are arranged by employers for their employees.

Self-managed super funds are private superannuation funds that allow people to directly invest their money.

How much money do you get on the age pension?

Pension payments can be reduced due to the income test and asset test (see ‘What is the age pension’s income test?’ and ‘What is the age pension’s assets test?’).

Here are the maximum fortnightly payments:

Category

Single

Couple each

Couple combined

Couple apart due to ill health

Maximum basic rate

$808.30

$609.30

$1,218.60

$808.30

Maximum pension supplement

$65.90

$49.70

$99.40

$65.90

Energy supplement

$14.10

$10.60

$21.20

$14.10

TOTAL

$888.30

$669.60

$1,339.20

$888.30