$450 monthly super threshold to be scrapped: What it may mean for your balance

Currently, employers don’t need to pay superannuation for employees who earn less than $450 per month but that is set to change from July 2022. We look at what impact it could have on your super balance.

One of the changes proposed in the Federal Budget earlier this year was that the $450 a month super threshold would be scrapped from 1 July 2022. The government is making good on this promise. In late October a bill to remove the $450 threshold was introduced to Parliament.

Basically, this means that from 1 July 2022, Aussies will be entitled to super guarantee payments even if they earn less than $450 a month. The Association of Superannuation Funds of Australia (ASFA) CEO, Dr Martin Fahy, described this as an important step towards providing adequate retirement savings for low-income earners, particularly for women and younger Australians.

According to ASFA, around 300,000 people, of whom approximately 63% are female, will benefit from the scrapping of the threshold. This includes casual and part-time workers, who sometimes work multiple jobs, and those working in the gig economy.

If you are one of the Aussies that might benefit from this change you might be wondering just how much of a difference it is likely to make to your super balance. The Canstar research team did the sums on a number of different hypothetical scenarios and the results are pretty impressive – especially if you have time on your side.

How much your super balance could increase once the $450 threshold goes

As the table below shows, a 20-year-old who earns $449 a month and currently has no super could have $118,084 in their super balance at age 67. If the threshold was not scrapped they would potentially have had nothing!

Even a 40-year-old stands to boost their super by $33,205 by age 67 as a result of having the $450 threshold removed.

As you can see, the younger you are the larger the benefit is likely to be. Also, those who work multiple jobs paying less than $450 a month will be able to grow their super even more.

Retirement super balance by monthly income and starting age

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Starting Gross Monthly Income Starting Age
20 30 40
$100 $26,299 $14,346 $7,395
$200 $52,599 $28,693 $14,791
$300 $78,898 $43,039 $22,186
$400 $105,197 $57,385 $29,581
$449 $118,084 $64,415 $33,205

Source: www.canstar.com.au. Prepared on 2/11/2021. Scenario begins at the start of the 2022-23 financial year. Assumes no initial super balance and retiring at age 67. SG Contribution amounts per Government announced rates are assumed to be paid into superannuation fund quarterly. Employer contributions are assumed to be taxed at 15%. Net investment returns assumed to be 8.21% p.a. based on the average annual 5-year return of balanced investment options available for a 30-year-old on Canstar’s database (with returns effective to 31 Aug 2021). Annual income is assumed to increase with inflation each year. Inflation is assumed to be 2.5%p.a. per RBA Inflation target. End balance at retirement shown in “today’s dollars”, i.e. it has been adjusted for inflation. Please note all information on income and superannuation performance returns are used for illustration purposes only. Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account. Past performance is not a reliable indicator of future performance.

What else you can do to boost your super

Even though removing the $450 threshold goes a long way towards helping lower-income earners build their super balance, it isn’t likely to be enough to give you a comfortable retirement. The ASFA Retirement Standard, which benchmarks the annual budget needed by Australians to fund a comfortable standard of living in their post-work years, estimates that a couple hoping for a ‘comfortable’ retirement will need $640,000 in savings while a single person will need $545,000.

There are a few things you may be able to do to boost your super balance. Some of these include:

  • Track down any lost super and consider consolidating super funds to reduce fees. Be sure to look at your insurance cover before closing a super fund though.
  • Give your super fund a health check to make sure that it has performed well over the long term compared with similar options and that the fees are reasonable.
  • Check out cashback sites such as Super Rewards and Boost Your Super that top up your super when you shop.
  • Add to your super yourself. There are a number of ways you can make voluntary contributions to your super. Even small amounts can make a difference.

Cover image source: Leszek Glasner/Shutterstock.com

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