Understanding the Superannuation Guarantee

Have you ever come across the term ‘Superannuation Guarantee’ and questioned what it means and more importantly, what relevance does it have to you and your retirement.

This article will explore the Superannuation Guarantee in depth and delve into the recent legislation changes surrounding the gradual increases of the Superannuation Guarantee Rate.

 

What is the Superannuation Guarantee

The Superannuation Guarantee (SG) is a legal requirement for employers in Australia to provide a minimum level of superannuation (retirement savings) for their employees. The current minimum contribution rate set by the government is 10.5% of an employee’s ordinary time earnings, as of 1 July 2022.

Employers are required to make these contributions to a complying superannuation fund or retirement savings account for their employees. The goal of the SG is to ensure that all Australians have a level of savings for their retirement.

 

History of the Superannuation Guarantee

Tracing back to the early 1990s, the Government Aged Pension was the primary source of retirement income for most Australians. Funds from the Aged Pension were generally not sufficient or adequate enough to support a comfortable standard of living for Australians and therefore there was a need for reform to support Australians in retirement.

To address the issue, the Keating Government introduced the Superannuation Guarantee in 1992. The initial contribution rate was set to 3% and was designed to encourage employers to assist in building the retirement savings of their employees. Over time, with increasing inflationary pressures and the increased cost of living, the contribution rate had also risen, amounting to 10.5% as of 1 July 2022.

 

Who is eligible?

Employers are required to make contributions to their employee’s nominated superannuation account under the superannuation guarantee, when an employee meets the following criteria:

  • Over the age of 18
  • Under the age of 18 but working over 30 hours a week.

Once this eligibility is met, the super guarantee is applicable to all types of employees including full-time, part-time and causal employees.

To see if you meet the eligibility, click here.

Employers must make superannuation contributions at least once every 3 months into their employee’s nominated super account.

 

Increases to the Superannuation Rate

The Australian Government has legislated a 0.5% increase in the superannuation rate each year until it reaches 12% in 2025.

From 1 July 2022, the Superannuation rate has increased to 10.5%, increasing by 0.5% from 1 July 2021.

 

The increases are outlined in the table below.

Date Superannuation Guarantee Percentage Increase from 9.5
1 July 2021 10% + 0.5%
1 July 2022 10.5% + 1.0%
1 July 2023 11% + 1.5%
1 July 2024 11.5% + 2.0%
1 July 2025 12% + 2.5%

 

What does this mean for you?

An increase in the super guarantee rate as an employee means that Australians will be able to accumulate greater funds in their superannuation over their working years. In turn, this will increase the likely hood for a comfortable retirement for Australians and supplement the Government Aged Pension as a source of retirement income.

Industry Super Australia (ISA) have produced a tool where you are able to see the difference that the extra percentage increase will make on your retirement funds. The results are based off three simple inputs:

1. Age

2. Annual income

3. Super balance

Click here to calculate the difference in your retirement income.

 

Ultimately, the implementation and legislation of Superannuation Guarantee is positive measure for Australians and the gradual increases in the Superannuation rate can help facilitate a more positive outlook on your future retirement.

If you would like tailored, transparent, commission-free financial advice regarding your insurance, super or current investment strategy, please click here to organise a complimentary 20-minute meeting with an EPG Wealth adviser.

 

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