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.
Am I being paid less super?
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.
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.