SGC freeze frame

The federal government gave a big shove to super this week – pushing super increases into the never-never and thrusting responsibility for your own super back to you.

Simply, employees aren’t going to get a higher rate of super dumped into their accounts for a long time.

If you want to increase your super balance, it will be up to you to do it.

0.5% might not seem like a lot, but it was supposed to be building by 2.5% from the current 9.5% to 12%. (I’ll come back to this.)

And that, every year, adds up a lot faster.

It can be argued that you’ll have more money to do that. By not forcing the impost for higher super contributions onto employers, businesses on average should be able to offer bigger pay rises.

Cynics will argue that won’t happen, sure. But it will take some pressure off employers knowing that the increase from 9.5% isn’t happening until next decade.

The two major changes to superannuation

The deal to repeal the mining tax during the week led to two major changes to superannuation. Firstly, the next 0.5% increase to the Superannuation Guarantee rate has been delayed from increasing next year to 2021.

In reality, that might as well be never. It’s at least two elections away and might as well not be legislated at all (given the current legislation has just been revoked).

Second, Clive Palmer won a concession to keep in place the low-income superannuation contribution – essentially a refund of the 15% contributions tax for those earning less than $37,000 – until June 30, 2017.

This is a win for lower income earners who get penalised by having contributions made to their super. If workers earn less than $18,200 a year, they pay no income tax. However, if 9.5% of that salary ($1729) gets paid into a super fund, it gets taxed at 15%.

Between $18,200 and $37,000, the personal marginal tax rate is 19%, (ignoring Medicare), so they only save the 4% difference between that and the superannuation contributions tax.

For someone earning $37,000, the government will put in another $500 into their super fund, when the super fund does its tax. A significant win for lower-income owners, at a cost to government, but no cost to business.

How the changes affect you

These changes will have no impact on a great number of Australians. Most of those with self-managed super funds actively manage their contributions in any case. They put in up to their contribution limits of $30,000 (or $35,000 for the over-50s), or the maximum they can afford, in any case.

Then there are the self-employed. They either make super contributions, or they don’t, but it’s their call.

It will impact on the majority of Australian employees, particularly those who don’t care about their super. Not caring about your super is a shame, because it’s your money, you just can’t touch it yet. No one else is really going to care about it if you don’t.

And then there are those who do care about their super and who know that every little bit counts. And they’re prepared to make small sacrifices to improve their retirement, which is looking longer and longer almost every year.

They are the ones who need to act here to make up for the estimated $3,500 in cumulative contributions the average salary earner will miss having put into their super by their employer.

How to contribute to your super

You need to act and probably want to act. The government wants you to take responsibility for your own retirement. And $3,500 over a bunch of years is not going to be that painful.

One way you can do it via salary sacrifice. It doesn’t have to be much (though it does require your employer’s cooperation, as they’re not legally required to provide this as part of salary packages).

In my opinion, anyone over 40 and working full time should be contributing a bit extra to their super fund. And the older you are, the more that you should already be doing this anyway.

If your employer will allow it, then tip in another $20 a week ($1040 a year) if you’re in your 20s, $40 a week ($2080) in your 30s, then something more considerable in your 40s, say $100 a week ($5200 a year).

If you’re in your 50s and 60s, then you should be looking to maximise your super contributions in any case. Sit down with a financial adviser to discuss either getting on to a “transition to retirement” pension plan, or getting ready for one.

But one thing’s clear. This mining tax deal, and it’s ramifications for your superannuation, mean that, more than ever, you’ve got to take control.

The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.

Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking. E: bruce@castellanfinancial.com.au

• The amount of analysis covering the systematic risk of the SMSF sector is insufficient, according to Westpac. In its response to the Financial System Inquiry’s interim report, Westpac said additional limitations should be imposed on the setup of SMSFs, with a clearer test having to be satisfied.
• The Australian Prudential Regulation Authority (APRA) has rejected such calls for prudential regulation, saying that the costs would outweigh any benefits. According to APRA the current arrangement – where SMSFs are regulated by the ATO – is appropriate as SMSF members are also its trustees, meaning the interests are naturally aligned.
• The Association of Superannuation Funds of Australia (ASFO), in its response to the Murray report, has suggested that the ATO be required to provide statements that caution individuals wanting to establish a SMSF with less than $400,000. The association pointed out that the estimated operating expense ratio declines in direct proportion to the size of the fund.
• The SMSF Owners’ Alliance (SMSFOA) has again warned about geared investments in SMSFs because they could create vulnerabilities in the superannuation system. “We do not believe it is appropriate for SMSFs to have high levels of gearing but we are also wary of the government mandating what SMSFs must and must not invest in,” SMSFOA warned.