(03) 9020 2905SUMMARY: Government delay on superannuation guarantee puts onus back on YOU to look after YOUR super.
THE Government gave a big shove to super this week – pushing super increases into the never-never and thrusting responsibility for your own super back to you.
Simply, employees aren’t going to get a higher rate of super dumped into their accounts for a long time.
If you want to increase your super balance, it will be up to you to do it.
Half a per cent might not seem like a lot, but it was supposed to be building by 2.5 per cent from the current 9.5 per cent to 12 per cent. (I’ll come back to this.)
And that, every year, adds up a lot faster.
It can be argued, that you’ll have more money to do that. By not forcing the impost for higher super contributions onto employers, businesses on average should be able to offer bigger payrises.
Cynics will argue that won’t happen, sure. But it will take some pressure off employers knowing that the increase from 9.5% isn’t happening until next decade.
The deal to repeal the mining tax during the week led to two major changes to superannuation. Firstly, the next 0.5% increase to the Superannuation Guarantee rate has been delayed from increasing next year to 2021.
In reality, that might as well be never. It’s at least two elections away and might as well not be legislated at all (given the current legislation has just been revoked).
Second, Clive Palmer won a concession to keep in place the Low Income Superannuation Contribution – essentially a refund of the 15% contributions tax for those earning less than $37,000 – until 30 June 2017.
This is a win for lower income earners who get penalised by having contributions made to their super. If workers earn less than $18,200 a year, they pay no income tax. However, if 9.5 per cent of that salary ($1729) gets paid into a super fund, it gets taxed at 15 per cent.
Between $18,200 and $37,000, the personal marginal tax rate is 19 per cent, (ignoring Medicare), so they only save the 4 per cent difference between that and the superannuation contributions tax.
For someone earning $37,000, the government will put in another $500 into their super fund, when the super fund does its tax. A significant win for lower-income owners, at a cost to government, but no cost to business.
These changes will have no impact on great numbers of Australians. Most of those with self-managed super funds actively manage their contributions in any case. They put in up to their contribution limits of $30,000 (or $35,000 for the over-50s), or the maximum they can afford, in any case.
Then there are the self-employed. They either make super contributions, or they don’t, but it’s their call.
It will impact on the majority of Australian employees, particularly those who don’t care about their super. Not caring about your super is a shame, because it’s your money, you just can’t touch it yet. No-one else is really going to care about it if you don’t.
And then there are those who do care about their super and who know that every little bit counts. And they’re prepared to make small sacrifices to improve their retirement, which is looking longer and longer almost every year.
They are the ones who need to act here to make up for the, roughly, $3500 in contributions that you’re going to miss having put into your super by your employer.
You need to act and probably want to act. The government wants you to take responsibility for your own retirement. And this is one way that you can do it.
And $3500 over a bunch of years is not going to be that painful.
You can do it via salary sacrifice. It doesn’t have to be much (though it does require your employer’s cooperation, as they’re not legally required to provide this as part of salary packages).
In my opinion, anyone over 40 and working full time should be contributing a bit extra to their super fund. And the older you are, the more that you should already be doing this anyway.
If your employer will allow it, then tip in another $20 a week ($1040 a year) if you’re in your 20s, $40 a week ($2080) in your 30s, then something more considerable in your 40s, say $100 a week ($5200 a year).
If you’re in your 50s and 60s, then you should be looking to maximise your super contributions in any case. Sit down with a financial adviser to discuss either getting on to a “transition to retirement” pension plan, or getting ready for one.
But one thing’s clear. This mining tax deal, and it’s ramifications for YOUR superannuation, mean that, more than ever, you’ve got to take control.
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The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.
Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking. E: bruce@castellanfinancial.com.au