Postponing or potential scrapping of the legislated Superannuation Guarantee Contribution increase what means to you – and why it’s not all doom and gloom
The Compulsory Employer Superannuation Guarantee Contribution scheme (SGC) was introduced by the Federal Government in 1992. It was a way to force Australians to save for retirement and to complement the Age Pension system. Initially starting at 3%, it has progressively increased through the past 30 odd years to its current 9.5% level.
However, even at this level, there are still people reaching retirement and relying on the Age Pension for the bulk of their income. In our article “Super – are you putting the most in to get the most out?,” we discuss what levels of superannuation you need to live a “comfortable lifestyle,” – levels that the current SGC, for some, is failing to achieve.
From 1 July 2021, the SGC rate is legislated to increase by 0.5% to 10%. It is set to increase by 0.5% per year over the next 4 years, until it reaches 12% in 2025. This is all good news, right? Increased superannuation savings will benefit all of us in retirement. The argument for increased SGC was much stronger until the beginning of 2020 and Covid.
Very early on in the pandemic, the Government signalled their intentions – we are going to spend our way to an economic recovery. Policies were put in place to keep people employed and keep cash flowing into business – putting money in the hands of those who will spend it in this way thereby stimulate the recovery.
Even with Government support industries struggled – and still do – as rolling lockdowns took their toll. Rolling back of initiatives such as job keeper has further compounded their financial problems.
What has Covid got to do with it?
In order for the Government’s policies for recovery to work, they need to get money into the economy. An increase of SGC at this time may have a twofold effect:
What is the Government Response?
- For an employer this is an expense. Employers will need to source the 0.5% increase from their current revenue. If they didn’t have to pay, an employer could buy more capital equipment or even employ more people – all of which help the economy to grow.
- The employees get a deferred benefit. Giving an employee 0.5% increase to their SGC will help them in retirement, but doesn’t do much to stimulate today’s economy. Giving the same 0.5% increase to take home pay would give an instant benefit to employees and therefore to the economy. Further to this argument is that a 0.5% increase to SG may slow future wage growth as employers seek to recoup this extra employment cost.
Late last year, the Morrison Government started to lay the foundation for the scrapping or further stalling of the SG increase – sighting some of the issues we discussed above. We won’t know anything official until closer to the 2021-22 Budget.
Should You be Concerned?
No you shouldn’t – as long as you have a plan. SGC was put in place to force you to save for retirement, but it is just one way you can get money into superannuation. There are many more, as we set out in our article.
Saving for retirement is a journey and not a mad dash to the finish line. You need to seek advice early, know your goals and have a strategy to reach them. Schedule a no-cost, no-obligation Discovery Meeting with Louella Jorge.
Discovery Wealth – Trusted Financial Adviser in Baulkham Hills and the Hills Area.
The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. Louella Jorge is an Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429. This editorial does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information, you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser before you act.