Changes to superannuation in July
On 1 July 2021, superannuation laws are set to change. These include an increase in the superannuation guarantee, an increase of the contributions cap, and changes to how super accounts run. In this article, we’ll explain each of these new laws coming to superannuation in July and how they may impact employers and employees.
Superannuation at a glance
Superannuation are the payments an employer makes on behalf of an eligible employee into their super fund. This is in addition to the employee’s wage. The law requires the employer to make this payment at least once every three months. Employees over 18 who earn at least $450 a month (though this will change in 2022) are eligible employees. Those under 18 may also be eligible if they work at least 30 hours a week.
Superannuation guarantee increase
The guarantee is the minimum amount the law requires the employer pay into the super fund. It is a percentage of an employee’s earnings. From 1 July 2021, the guarantee increases from 9.5% to 10% of the employee’s earnings. This is significant considering that the guarantee hasn’t increased since 2014. The increase is part of a bigger plan by the government to increase the rate every year by 0.5% until it reaches 12% in 2025.
Super funds help to support retired Australians so that they don’t have to rely solely on a government pension once they stop working. The increase will therefore positively impact employees as they will be increasing the funds available to them in retirement.
For more information, you can read our guide on ‘How does superannuation work (employee)’
What will my business have to do?
The increase will mean that employers will have to update their payment systems to ensure that they are paying the correct amount into their employee’s super funds. You will have to pay more if your employee’s salary packages are ‘plus super’. However, if their packages include super, your can choose whether to increase their package to account for the superannuation guarantee increase. If an employer fails to pay an employee’s super, an employee can make a complaint to the Australian Taxation Office. For more information, you can read our guide on ‘What to do if your employer is not paying superannuation’
Contributions cap
The contributions cap applies to self managed super funds (SMSF). A SMFS is an alternative option to industry super funds, which allows the individual to have complete control over the funds management.
For more information, you can read our guide on ‘5 benefits of having a self-managed super fund’
Concessional contributions are payments made into a SMSF that the law considers to be a part of a SMSF’s assessable income. These include contributions made by an employer, such as the super guarantee, as well as any personal contributions that have tax deduction claims. The cap limits the contributions for a member each financial year. The annual concessional contribution cap increases from $25,000 to $27,500 on July 1st 2021.
Non-concessional contributions are contributions made into a SMSF that are not considered as part of the SMSF’s assessable income. This includes personal contributions for which there are no tax deduction claims, as well as any excess concessional contributions. The non-concessional contributions cap increases from $100,000 to $110,000 on July 1st 2021.
If your total contributions in a year exceed the contribution caps you may be also liable for additional tax. By permitting individuals to make greater payments into their SMSF without additional tax liabilities, the reform positively impacts Australian employees.
Super accounts
A new super account will no longer be created automatically every time an individual starts a new job. Instead, the super account will be ‘stapled’ to the employee so that it follows them through each new job.
This will prevent the creation of unintended multiple super accounts and the erosion of super balance. The government estimates that 4.4 million people hold 6 million multiple accounts. As a result, the government estimates that this reform will save Australian employees approximately $2.8 billion over 10 years, by eliminating duplicate fees, insurance, and lost earnings.
This change requires employers to obtain information about their employee’s existing super fund from the ATO online services website.
For more information, you can read our guide on ‘How does superannuation work (employer)’
Conclusion
The range of new laws coming into effect on 1 July all aim to enhance superannuation for Australian employees. This in turn enhances retirement and also quality of life for future generations. Employers who do not comply may face penalties for failing to pay the required amount of super.
