Superannuation Guarantee: it pays to check

Superannuation Guarantee: it pays to check

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?

woman holding nest with golden egg to represent superannuation guarantee contributions

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.

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Learn more about superannuation

What are reportable superannuation contributions?

For employees, there are two types of reportable superannuation contributions:

  • Reportable employer super contributions your employer makes for you
  • Personal deductible contributions you make for yourself

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.

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.

Can my employer use money from my superannuation account?

No, your employer can’t touch the money that is paid into your superannuation account.

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 much superannuation should I have?

The amount of superannuation you need to have at retirement is based on how much money you would expect to spend each week during your retirement. That, in turn, depends on whether you expect to lead a modest retirement or a comfortable retirement.

The Association of Superannuation Funds of Australia (ASFA) estimates you would need the following amount per week:

Lifestyle Singles Couples
Modest $465 $668
Comfortable $837 $1,150

Here is the superannuation balance you would need to fund that level of spending:

Lifestyle Singles Couples
Modest $50,000 $35,000
Comfortable $545,000 $640,000

These figures come from the March 2017 edition of the ASFA Retirement Standard.

The reason people on modest lifestyles need so much less money is because they qualify for a far bigger age pension.

Here is how ASFA defines retirement lifestyles:

Category Comfortable Modest Age pension
Holidays One annual holiday in Australia One or two short breaks in Australia near where you live Shorter breaks or day trips in your own city
Eating out Regularly eat out at restaurants. Good range and quality of food Infrequently eat out at restaurants. Cheaper and less food Only club special meals or inexpensive takeaway
Car Owning a reasonable car Owning an older, less reliable car No car – or, if you do, a struggle to afford the upkeep
Alcohol Bottled wine Casked wine Homebrew beer or no alcohol
Clothing Good clothes Reasonable clothes Basic clothes
Hair Regular haircuts at a good hairdresser Regular haircuts at a basic salon Less frequent haircuts or getting a friend to do it
Leisure A range of regular leisure activities One paid leisure activity, infrequently Free or low-cost leisure activities
Electronics A range of electronic equipment Not much scope to run an air conditioner Less heating in winter
Maintenance Replace kitchen and bathroom over 20 years No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom No budget to fix home problems like a leaky roof
Insurance Private health insurance Private health insurance No private health insurance

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.

Can I carry on a business in an SMSF?

SMSFs are allowed to carry on a business under two conditions.

First, this must be permitted under the trust deed.

Second, the sole purpose of the business must be to earn retirement benefits.

What compliance obligations does an SMSF have?

SMSFs must maintain comprehensive records and submit to annual audits.

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 do you pay superannuation?

Superannuation is paid by employers to employees. Employers are required to pay superannuation to all their staff if the staff are:

  • Over 18 and earn more than $450 before tax in a calendar month
  • Under 18, work more than 30 hours per week and earn more than $450 before tax in a calendar month

This applies even if the staff are casual employees, part-time employees, contractors (provided the contract is mainly for their labour) or temporary residents.

Currently, the superannuation rate is currently 9.5 per cent of an employee’s ordinary time earnings. This 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.

Employers must pay superannuation at least four times per year. The due dates are 28 January, 28 April, 28 July and 28 October.

How many superannuation funds are there?

There are more than 200 different superannuation funds.

What superannuation details do I give to my employer?

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 should also provide your tax file number – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

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.