Super Guarantee rise and the single parent home scheme start today: but beware of the fine print

Super Guarantee rise and the single parent home scheme start today: but beware of the fine print

Today two government initiatives kick off, designed to provide Australians with a more secure future, but not everyone is guaranteed to be a winner.

Changes to the Super Guarantee

From today, employers will have to put a minimum of 10 per cent of every eligible employee’s base salary into their super fund – up from 9.5 per cent. After a pause since July 2014, the super guarantee is scheduled to rise 0.5 per cent a year until it hits 12 per cent in July 2025.

However, people who are on a package salary, which has been negotiated as a total amount, inclusive of super, could see a decrease in their take home pay instead.

Sally Tindall, research director at RateCity.com.au, said: “The increase to the super guarantee will help millions of Australians build up their nest eggs, which is fantastic news.”

“However, if you’re eligible for the increase, it’s worth double checking who is paying the bill,” she said.

“Most people are likely to find their employers are footing the bill for the extra super, but for some employees, it could come down to the wording of their employment contract.

“If you’ve negotiated a ‘package’ salary which includes the company’s super contributions in the total amount, there’s a chance your company will cut your take home pay to fund this super increase.

“The super guarantee is set to increase by half a percent for the next four years, so while this year’s pay cut might be small, by the end of 2025 it will start to add up.

“If you’re affected adversely by this super change, use it as an opportunity to take your pay packet back to the negotiating table,” she said.

Super guarantee – scheduled changes

Date of change Rate
1 July 2014

9.5%

1 July 2021

10.0%

1 July 2022

10.5%

1 July 2023

11.0%

1 July 2024

11.5%

1 July 2025

12.0%

Note: the above rates are for the general Super Guarantee as outlined by the ATO

 

Family Home Guarantee

The Family Home Guarantee starts today, which helps eligible single parents buy a property with a deposit of as little as 2 per cent, without having to pay lenders’ mortgage insurance (LMI).

The program provides 10,000 places over four years, however single parents must earn less than $125,000 to qualify. They also need to buy a home below the scheme’s property price caps (see list below).

RateCity’s Sally Tindall said: “This is a well-meaning scheme but the property price caps are unrealistic for many families, particularly in hotspots such as Sydney and Melbourne.

“Single parents looking for a backyard for their kids will be limited for choice in any capital city.

“While the scheme has good intentions, the real problem families are facing is escalating property prices. Tackling the larger problem of housing affordability is likely to provide more widespread relief,” she said.

 

First home loan deposit scheme

Another 10,000 places will also become available today in the First Home Loan Deposit Scheme, which allows first home buyers to buy a property with as little as 5 per cent deposit without having to pay LMI. 

Sally Tindall said: “Getting into the property market ahead of schedule has its perks. You can stop paying rent and potentially take advantage of any capital growth after you’ve bought.”

“However, if you jump into this scheme, be prepared for the toast to fall butter-side down. If property prices stagnate, or drop, and you’ve bought at the peak, your sliver of equity could easily evaporate.

“If you buy with a small deposit, be prepared to pay more in monthly repayments because you’re likely to have a larger loan. If rates rise, which they’re expected to do, that cost will be amplified because you’re carrying more debt,” she said.

Property price caps: first home loan deposit scheme and new home guarantee

  Cap up until June 2021 Cap from 1 July 2021 Increase
NSW – Sydney, Newcastle, Lake Macquarie & Illawarra

$700,000

$800,000

$100,000

NSW – other

$450,000

$600,000

$150,000

VIC – Melbourne, Geelong

$600,000

$700,000

$100,000

VIC – other

$375,000

$500,000

$125,000

QLD – Brisbane, Gold Coast & Sunshine Coast

$475,000

$600,000

$125,000

QLD – other

$400,000

$450,000

$50,000

WA – Perth

$400,000

$500,000

$100,000

WA – other

$300,000

$400,000

$100,000

SA – Adelaide

$400,000

$500,000

$100,000

SA – other

$250,000

$350,000

$100,000

TAS – Hobart

$400,000

$500,000

$100,000

TAS – other

$300,000

$400,000

$100,000

ACT

$500,000

$500,000

$0

NT

$375,000

$500,000

$125,000

 

Median property prices in capital cities vs caps

  Cap Median house price Median unit price
Sydney

$800,000

$1,224,613

$794,193

Melbourne

$700,000

$929,769

$610,043

Brisbane

$600,000

$657,551

$415,536

Perth

$500,000

$550,099

$395,979

Adelaide

$500,000

$551,538

$359,359

Hobart

$500,000

$652,092

$492,748

Canberra

$500,000

$877,311

$501,754

Darwin

$500,000

$567,842

$337,048

 

Pros and cons of buying with a small deposit

Pros

  • Get into the market sooner without having to pay lenders mortgage insurance.
  • Avoid paying more for property, if prices rise even further.
  • Stop paying rent and redirect that money to the mortgage.
  • Potential to benefit from capital growth in the property.
  • Security of where you live and send your kids to school without having to worry about the landlord not renewing the lease or selling the property.

Cons

  • Mortgage repayments are higher so you’ll pay more each month.
  • If rates rise, the repayment hikes are amplified on a larger loan.
  • Little buffer if things don’t go to plan.
  • If property prices fall, you could find yourself in negative equity, owing more to the bank than your house is worth.
  • You would stop receiving rental assistance, if you were receiving it as a single parent.
  • As a property owner, you would start paying for extra expenses such as council rates, strata (in an apartment) and maintenance.

Alternative options

  • Buy with a family member or potentially even a friend.
  • Rent-vest – i.e. buy a property elsewhere as an investor, while you rent where you need to live.
  • If you don’t have family close by, consider moving somewhere cheaper.

 

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Fact Checked -

This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

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Learn more about superannuation

What is the age pension's assets test?

The value of your assets affects whether you can qualify for the age pension – and, if so, how much.

The following assets are exempt from the assets test:

  • your principal home and up to two hectares of used land on the same title
  • all Australian superannuation investments from which a pension is not being paid – this exemption is valid until you reach age pension age
  • any property or money left to you in an estate, which you can’t get for up to 12 months
  • a cemetery plot and a prepaid funeral, or up to two funeral bonds, that cost no more than the allowable limit
  • aids for people with disability
  • money from the National Disability Insurance Scheme for people with disability
  • principal home sale proceeds you’ll use to buy another home within 12 months
  • accommodation bonds paid on entry to residential aged care
  • any interest not created by you or your partner
  • a Special Disability Trust if it meets certain requirements
  • your principal home, if you vacate it for up to 12 months
  • granny flat rights where you pay more than the extra allowable amount

For full pensions, reductions apply when your assessable assets exceed these thresholds:

Category

Home owners

Non-home owners

Singles

$253,750

$456,750

Couples living together

$380,500

$583,500

Couples living apart due to ill health

$380,500

$583,500

Couples with only one partner eligible

$380,500

$583,500

For part pensions, reductions apply when your assessable assets exceed these thresholds:

Category

Home owners

Non-home owners

Singles

$550,000

$753,000

Couples living together

$827,000

$1,030,000

Couples living apart due to ill health

$973,000

$1,176,000

Couples with only one partner eligible

$827,000

$1,030,000

For transitional rate pensions, reductions apply when your assessable assets exceed these thresholds:

Category

Home owners

Non-home owners

Singles

$503,250

$706,250

Couples living together

$783,000

$986,000

Couples living apart due to ill health

$879,500

$1,082,500

Couples with only one partner eligible

$783,000

$986,000

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

What are the age pension's residence rules?

On the day you claim the age pension, you must be in Australia and you must have been an Australian resident for at least 10 years (with no break in your stay for at least five of those years). The following exceptions apply:

  • You’re exempt from the 10-year rule if you’re a refugee or former refugee
  • You’re exempt from the 10-year rule if you’re getting Partner Allowance, Widow Allowance or Widow B pension
  • You can claim the age pension with only two years of residency if you’re a woman whose partner died while you were both Australian residents
  • You might be able to claim the age pension if you’ve lived or worked in a country that has a social security agreement with Australia

What is the age pension's income test?

These are the rules for most people who want to claim the standard pension:

Single people

  • If your income per fortnight is up to $168, you’re entitled to a full pension
  • If your income per fortnight is over $168, your pension will reduce by 50 cents for each dollar over $168

Couples

  • If your income per fortnight is up to $300, you’re entitled to a full pension
  • If your income per fortnight is over $300, your pension will reduce by 50 cents for each dollar over $300

These are the rules for most people who want to claim the transitional pension:

Single people

  • If your income per fortnight is up to $168, you’re entitled to a full pension
  • If your income per fortnight is over $168, your pension will reduce by 40 cents for each dollar over $168

Couples

  • If your income per fortnight is up to $300, you’re entitled to a full pension
  • If your income per fortnight is over $300, your pension will reduce by 40 cents for each dollar over $300

For most people, the age pension cuts off if your fortnightly income exceeds these thresholds:

Category Fortnightly income
Standard pension for singles $1,944.60
Standard pension for couples living together $2,978.40
Standard pension for couples living apart due to ill health $3,853.20
Transitional pension for singles $2,038.00
Transitional pension for couples living together $3,317.00
Transitional pension for couples living apart due to ill health $4,040.00

What are the age pension's age rules?

Australians must be aged at least 65 years and 6 months to access the age pension. This eligibility age is scheduled to increase according to the following schedule:

Date Eligibility age
1 July 2019 66 years
1 July 2021 66 years and 6 months
1 July 2023 67 years

How does the age pension work?

Most Australians who are of retirement age can qualify for the age pension. However, depending on the size of your assets and post-retirement income, you might be entitled to only a reduced pension. In some instances, you might not be entitled to any pension payments.

Can I buy a house with my superannuation?

First home buyers are the only people who can use their superannuation to buy a property. The federal government has created the First Home Super Saver Scheme to help first home buyers save for a deposit. First home buyers can make voluntary contributions of up to $15,000 per year, and $30,000 in total, to their superannuation account. These contributions are taxed at 15 per cent, along with deemed earnings. Withdrawals are taxed at marginal tax rates minus a tax offset of 30 percentage points.

Voluntary contributions to the First Home Super Saver Scheme are not exempt from the $25,000 annual limit on concessional contributions. So if you pay $15,000 per year into the First Home Super Saver Scheme, you have to make sure that you don’t receive more than $10,000 in superannuation payments from your employer and any salary sacrificing.

Is superannuation included in taxable income?

Superannuation is not included when calculating your income tax. So if you have a salary of $50,000, your assessable income would be $50,000, not $50,000 plus superannuation.

That said, superannuation itself is taxed. It is generally taxed at 15 per cent, although if you earn less than $37,000, you will be reimbursed up to $500 of the tax you paid.

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 much extra superannuation can I add to my fund?

There is an annual limit of $25,000 for concessional contributions – that is, money paid by your employer and extra money you pay into your account through salary sacrificing. There is also a limit on non-concessional contributions. Australians aged between 65 and 74 have a limit of $100,000 per year. Australians aged under 65 have a limit of $300,000 every three years.

Am I entitled to superannuation if I'm a contractor?

As a contractor, you’re entitled to superannuation if:

  • The contract is mainly for your labour
  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month

Please note that you’re entitled to superannuation even if you have an Australian business number (ABN).

What is lost superannuation?

Lost superannuation refers to savings in an account that you’ve forgotten about. This can happen if you’ve opened several different accounts over the years while moving from job to job.

When can I access my superannuation?

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

The preservation age – which is different to the pension age – is based on date of birth. Here are the six different categories:

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

A transition to retirement allows you to continue working while accessing up to 10 per cent of the money in your superannuation account at the start of each financial year.

There are also seven special circumstances under which you can claim your superannuation:

  • Compassionate grounds
  • Severe financial hardship
  • Temporary incapacity
  • Permanent incapacity
  • Superannuation inheritance
  • Superannuation balance under $200
  • Temporary resident departing Australia

 

How do you open a superannuation account?

Opening a superannuation account is simple. When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You might want to provide your tax file number as well – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.