Super Guarantee increase: Will it mean a pay cut for you?

MARIA BEKIARIS
The Super Guarantee increase will mean a pay cut for some Aussies. We look at who may be affected and how much it may cost them.

It’s been a long time coming but the Super Guarantee (SG) is increasing from 9.5% to 10% on 1 July. This is six years after it was originally set to rise to 10% in July 2015.

This hike is good news as it will provide a much-needed boost to the super savings of most Aussies. The Association of Superannuation Funds of Australia (ASFA) released analysis of the impact on retirement balances of the increase in the SG. ASFA found that for the average 30-year-old Australian worker it represents an extra $19,000 in their super nest egg at retirement.

“The long-term benefits of the system reaching 12% are even greater. For the average Australian worker, the change will mean an extra $85,000 in super at retirement,” ASFA Deputy CEO and Chief Policy Officer, Glen McCrea, added.

The increase will mean more Aussies will be able to afford a comfortable retirement. “Currently only 25% of Australians achieve a self-funded retirement. By 2050, that number is set to double as a result of the super system moving to 12%,” said Mr McCrea.

Some employees will take a pay cut

The bad news is that, for some Aussies, the increase in the SG will mean a cut to their take-home pay. “Large publicly listed companies including Telstra, AGL, ANZ and Macquarie Group are among employers that are asking some of their staff to use money out of their own pockets in order to fund the upcoming 0.5% increase in superannuation payments,” reported the ABC.

Legally employers have the right to do this. It all comes down to your employment contract and whether your super is part of your total package or paid on top of your base salary. If it is part of your package then, strictly speaking, your employer can reduce your base pay to fund the additional SG.

Research firm Mercer surveyed 145 organisations and found that almost two-thirds of companies with a ‘total package’ approach are passing on at least some of the cost to employees.

A number of unions have spoken out about this approach. The Finance Sector Union launched a petition “Don’t steal our super” requesting: “ANZ should immediately scrap plans to have employees on certain contract types fund the mandated superannuation increase out of their own pockets.”

And in a news.com.au article ACTU president Michele O’Neil was quoted as saying: “This cannot be an either/or proposition. Workers need a wage rise and an increase to super.”

If you’re not sure what it will mean for you it’s a good idea to check your employment contract or reach out to your human resources department to get clarification.

The impact of the SG coming from your salary

If your pay will take a hit from the increase in the SG it’s natural to wonder how much this will cost you in lost income in the long term. Our research team crunched the number based on a number of different salaries and has also factored in the remaining scheduled SG increases over the next few years until the SG rate hits 12% in July 2025.

As the table below shows, in this hypothetical example, someone earning $70,000 will have lost $37,657 in income (before tax) after 20 years while someone on $110,000 will be $59,176 worse off after 20 years. Sure, they will have more in super but those who don’t have their take-home pay cut will have both that income and extra super.

Lost income from funding the Super Guarantee increases from your salary package

After x Years Starting Base Salary
$50,000 $70,000 $90,000 $110,000 $130,000
5 $3,689 $5,164 $6,640 $8,115 $9,591
10 $10,492 $14,689 $18,886 $23,082 $27,279
20 $26,898 $37,657 $48,416 $59,176 $69,935
30 $47,899 $67,059 $86,218 $105,378 $124,538

Source: www.canstar.com.au – 24/06/2021. Calculations assume the same starting base salary for scenarios of: base plus super and salary package including super. Subsequent super guarantee (SG) increases are deducted from the salary package base income, with any income growth applied to the net amount. Calculations assume SG increases of 0.5% per financial year up to 12% by the start of 2025-26 and an increase of 2.5% p.a. to base income in line with the 20-year average CPI as well as RBA Target Inflation. Lost income is before tax.


Compare Superannuation with Canstar

The table below displays some of the superannuation funds currently available on Canstar’s database for Australians aged 30 – 39 with a super balance of up to $55,000. The results shown are sorted by Star Rating (highest to lowest) and then alphabetically by provider name. Performance figures shown reflect net investment performance, i.e. net of investment tax, investment management fees and the applicable administration fees based on an account balance of $50,000. To learn more about performance information, click here. Use Canstar’s superannuation comparison selector to view a wider range of super funds. Canstar may earn a fee for referrals.

Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group specified above.


 

Cover image source: Cookie Studio /Shutterstock.com


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