New research released by Industry Super Funds Australia (ISA) suggests that the Superannuation Guarantee (SG) scheme is falling short.
Amidst talk of an increase in employer super contributions- from 9.5 to 12 per cent – these ISA findings suggest that non-payment and voluntary compliance are more pressing issues.
Not all is lost however, as this could be the gentle reminder Australians need to increase their financial awareness and take control of their superannuation fund before they retire.
Will increasing contribution solve non-payment of the Superannuation Guarantee?
Increasing the rate of superannuation employer contributions is appealing for Australians who are paid their super, in full, every quarter, as they will have a larger nest egg to rely on when it comes to retirement.
Yet unfortunately an increase in employer contributions will do nothing for Australians with underpaid or unpaid super contributions from employers.
The ISA report, released on the 15th August, outlines two main issues with non-payment of super in Australia: how super is paid into the accounts of employees, and the $450/month contribution threshold.
The employer contribution payment process
The ATO states that all employers must pay the Superannuation Guarantee at least four times a year, by the quarterly due dates. During those three-month windows, some rogue employers might use withheld SG payments to bolster their cashflow, instead of setting the money aside.
This suggests it might take employees weeks or even months before they discover their employee contributions are not being paid into their nominated super fund.
The ISA is not the only party concerned. Ian Fryer, Head of Research at Chant West sees further issues with the SG scheme payment processes and in particular, with the employer default fund.
“Currently, when someone starts a new job, a new super account is opened for them in their new employer’s default fund unless they already have an account with that fund or they tell their employer they want a different fund,” Mr Fryer said.
Like the ISA, Mr Fryer is deeply concerned with the cost of these default funds to the economy, and the opening of multiple accounts which can lead to “lost” employee super.
“This arrangement has led to about 10 million multiple accounts and costs about $2.6 billion annually, according to the Productivity Commission. This must change!”
Employer contribution threshold : $450/month
The impact that the $450/month contribution threshold has had on low income and casual workers, posit that legislative changes are needed.
Employees earning less than $450/month from one employer, as per the SG scheme guidelines, are not eligible to receive employer contributions.
This means that job holders generating a combined income of $450/month or more from multiple employers, receive no contributions from their employers.
This gap in coverage is not addressed by an increase in the contribution amount, and in fact could be causing employers to ensure they hire multiple casual employees, that do not earn more than $449/month each.
Does the ATO rely too heavily on voluntary compliance?
The ISA suggests that issues with non-payment need to be addressed by stricter enforcement and active identification of misconduct by the ATO.
Unlike wages and annual leave, SG is not covered by the Commonwealth’s Fair Entitlements Guarantee scheme. This scheme provides financial assistance to cover certain unpaid employment entitlements to eligible employees who lose their job due to the liquidation or bankruptcy of their employer – but do not cover unpaid SG contributions.
This lack of enforcement, promotion of voluntary compliance and unreliable payment processes are all impacting upon the regulation of the SG scheme.
In fact, the Australian National Audit Office voiced these concerns back in their 2015 to the ATO in their report Promoting compliance with Superannuation Guarantee obligations.
“The SG Scheme operates largely independently of the ATO, and the Office only has partial visibility of the flow of money and information between employers, employees and superannuation funds,” the submission states.
“[This affects] its capacity to encourage compliance and address non-compliance with Scheme obligations.”
In short, despite collecting important data on superannuation contributions, most compliance activities were undertaken by employees or employers, suggesting that unless the ATO can proactively identify SG misconduct, this can go unnoticed.
How can you get the most from your super?
In light of the ISA findings, it seems that better monitoring and stronger enforcement should be the focus of the superannuation debate, rather than an increase in the contribution amount.
However, without direct influence on the ATO or the industry, how can you as a consumer make the most of your super fund?
Check your super fund each quarter: If you are currently supposed to receive a superannuation guarantee contribution of 9.5% – make sure that you get it! Check your super fund every three months or so, and if the contribution is not the 9.5% you’re legally owed, speak to your employer.
Report underpayments to the ATO: If your employer is not cooperative, and you feel that you are being underpaid, reach out to the ATO to report it.
It may be a daunting concept, but you are legally owed super, and with voluntary compliance a key factor in holding employers accountable, it really is up to you.