The Super Guarantee

Thank you for a great year from all of us at Chris Humphrey Private Wealth Management.  We hope you have a merry Christmas and a safe and prosperous new year.  This month’s Wealth Pipeline looks at the upcoming increase to the superannuation guarantee.

The Super Guarantee

The Superannuation Guarantee (SG) legislation requires employers to pay a minimum of 9% of its employees' ordinary time earnings as super (up to $45,750 per quarter) which in turn can be claimed as a tax deduction.  SG contributions must be paid for employees who are at work or on leave, such as paid sick leave, long service leave, annual leave and workers’ compensation (in some circumstances).  Under the legislation, SG contributions do not need to be paid for employees who are:

• earning less than $450 in a calendar month;
• aged 70 or over; or
• under 18 years of age and working less than 30 hours a week.

Employer contributions are also generally not required when an employee is away from work and not receiving pay, such as on parental leave or approved leave without pay.

Increase to the Super Guarantee

The superannuation guarantee (SG) rate will gradually increase from the current rate of 9%, to 12% between 1^st July 2013 and 1^st July 2019.  This is illustrated in the below table:

Furthermore, from 1 July 2013, the age limit on SG contribution for employees will be removed (currently capped at age 70).

Will this Affect my Pay?

Depending on how your pay is structured this will result in lower take home pay for some employees.  For example, if your employment contract states that your remuneration package is $x,xxx inclusive of superannuation, any increase to the SG contribution will result in a decrease in your take home pay.    

Other Notable Consequences

The increase in SG will result in additional demand for investments by superannuation funds.  This should benefit for Australian equities given the increased inflow of money to be invested in the market.