The government is delaying the increase in the superannuation guarantee (SG) contributions that your employer makes into your super. The freeze in the rate of compulsory super contributions is part of the repeal of the Minerals Resource Rent Tax, which has finally passed through parliament.
Under the previous arrangements, the SG rate was set to increase gradually to 12% by 2019. But under the new changes, the SG rate will now stay at 9.5% until 30 June 2021. After this, the SG rate will increase by 0.5% a year until it reaches 12% from 1 July 2025.
|Financial year starting on or after||Super guarantee percentage|
|1 July 2015||9.5%|
|1 July 2016||9.5%|
|1 July 2017||9.5%|
|1 July 2018||9.5%|
|1 July 2019||9.5%|
|1 July 2020||9.5%|
|1 July 2021||10.0%|
|1 July 2022||10.5%|
|1 July 2023||11.0%|
|1 July 2024||11.5%|
|1 July 2025||12.0%|
As part of its negotiations to repeal the mining tax, the government has agreed to delay other savings measures.
- The Low Income Superannuation Contribution will now be abolished from 1 July 2017. So if you earn $37,000 or less a year, you will still receive an extra super contribution of up to $500 for any contributions your employer makes into your super fund until 30 June 2017.
- The Income Support Bonus and Schoolkids Bonus will now be abolished from 31 December 2016. In the meantime, there will be an income test limiting the Schoolkids Bonus to families with an adjusted taxable income of $100,000 or less.
What does this mean for your retirement savings?
The delay in the increase in compulsory super contributions means you won’t have as much in your super as you may have planned over the years to come. And the more you earn, the more you stand to lose in future super contributions.
So you may need to rethink your long-term savings strategy to make sure you have enough money to enjoy a comfortable retirement. It’s even more important to think about putting extra money into your super if you want to achieve your retirement dreams.
Super still the one
Super remains the most tax-effective way to save so that you can maintain your lifestyle in retirement.
Any contributions to your super from your pre-tax salary up to $30,000 (or $35,000 if you’re over 49) are only taxed at 15%,1 which is lower than most people’s marginal tax rate. Any earnings are taxed at up to 15%. And any withdrawals are tax free once you’ve reached age 60 and can access your super.
Contributing more to your super at the concessional tax rate is simple.
- If you’re an employee, talk to your employer (usually payroll) about setting up a regular salary sacrifice arrangement from your pre-tax salary to your super fund.
- If you’re self-employed, talk to your AMP financial adviser about making tax-deductible personal super contributions to achieve the same result.
1 Unless you earn over $300,000, in which case pre-tax contributions are taxed at 30% for any earnings over that amount.