Super changes

How will the latest round of superannuation contribution changes impact you?

If you are an employer or employee, it’s important to know how compulsory superannuation contributions are about to change and what it means for you. 

RACQ Financial Advocacy Analyst Nathanael Watts decodes the latest changes to super.

What are compulsory super contributions?

The minimum super contribution rate is dictated by the Superannuation Guarantee which requires employers to make super contributions on behalf of their employees into a nominated super account.

Compulsory super contributions have a two-fold effect as it forces workers to save for their retirement and reduces the number of people who will rely on the government’s aged pension.

How will it change?

The Superannuation Guarantee has been steadily increasing since its implementation in 1992 and is now set to rise from 9.5% to 12% by the start of the 2025 financial year.

Employees will start seeing an increase to their super contributions on 1 July, 2021 when the compulsory rate will be raised to 10% with a further increase of 0.5% each year until the 12% contribution level is reached.

What does this mean for employees?

While an increase to compulsory super contributions may be a good thing for some, it may also leave many Australian earners disadvantaged.

People often don’t consider superannuation to be part of their wage and only think in terms of their gross or net income.

The increase to super could be a problem if the current low wage growth trend continues, while the super guarantee is increasing, it may mean your take-home wage doesn’t keep up with inflation.

For example, if your wage increases by 2% when the Superannuation Guarantee increases by 0.5%, and inflation is at 1.6%, then your ‘real’ take home pay has gone down 0.1%.

However, a higher super contribution rate also means employees will be better off when it comes to retirement.

It’s easy to focus only on what these changes mean for your budget now, but the upside is that you will have more money going into your super fund. The earlier in your career this happens, the more time your super will have to grow which may mean you’re able to retire earlier or enjoy a more comfortable retirement.

The information in this article has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in the document is general advice and does not take into account any person's particular investment objectives, financial situation or needs. Before acting on anything based on this advice you should consider its appropriateness to you, having regard to your objectives, financial situations and needs.