Under Australia’s Superannuation Guarantee (SG) laws, employers are required to pay a set percentage of superannuation into each eligible employee’s super fund, on top of their standard wages or salaries.
From 1 July 2021, SG rates increased from 9.5 percent of ordinary time earnings to 10 percent. The SG rate is scheduled to continue to increase until it reaches 12 percent from 1 July 2025 onwards.

Why the increase?
SG is increasing to further help Australians save for their life in retirement. The SG rate has increased since its introduction in 1991, from 3 per cent to 9 per cent, and then 9.5 per cent in 2014.

Out of concern that many retirees would be too reliant on the age pension, and to increase the extent to which Australians have sufficient savings to self-fund a comfortable income by the time they retire, Parliament legislated a gradual increase of the percentage to 12 per cent by 1 July 2025.

The 2014 Federal budget deferred the 2018 SG rate increase by three years, such that the 9.5 per cent rate remained until 30 June 2021. Five annual increases of 0.5 per cent are now due until SG reaches 12 percent from 1 July 2025.

Why only 0.5 per cent?
This stepped increase gives businesses time to plan ahead and manage small increases each year rather than cope with a 2.5 per cent increase all at once.

If you’re an employer and need some assistance to navigate the changes and understand your obligations, you’re welcome to contact legalsuper – the industry super fund for Australia’s legal community – for comprehensive, personalised support.

What does this mean for employees?
As a result of this change, most employees will receive more super from their employer, but the overall impact of the SG increase will depend on people’s employment arrangements.

There may be a potential ‘sting in the tail’ for people whose wages or salaries are packaged in a certain way and they may find they actually take home less pay each pay cycle.

People covered under enterprise agreements, or minimum pay standards, are unlikely to be affected. However, those under an employment contract specifying their total remuneration, inclusive of superannuation, may take home less pay from July 1.

I would encourage you to check if the SG increase has any implications for your remuneration package, including any salary sacrifice or after-tax contributions arrangements you may have in place. Your super fund and your employer will be able to help you with this.

Looking long term
A 0.5 per cent increase to your super may not seem like much, but over the long-term, with the wonders of compound interest and the lower tax rates applying to superannuation, a small increase in super could make a huge impact on your life in retirement.

To help you see what the latest SG increase could mean for you over the long-term, use the Industry Super Australia free online Superannuation Calculator. Take a look and find out how much extra you may have in retirement.

Legal Super Pty Ltd ABN 37 004 455 789 is the Trustee of legalsuper ABN 60 346 078 879 and holds Australian Financial Services Licence No. 246315 under the Corporations Act 2001. The information contained in this document is of a general nature only and does not take into account your objectives, financial situation or needs. Past performance is not a guide to future performance.

ANDREW PROEBSTL is Chief Executive of legalsuper, Australia’s industry super fund for the legal community. He can be contacted on ph 03 9602 0101 or via [email protected].