Super guarantee to rise from 1 July

23rd May 2021

Employers – now is the time to start thinking about how you’ll manage the increase to the super guarantee (SG).

The SG — the compulsory superannuation employers must contribute to their workers’ retirement savings — will increase to 10% from 1 July 2021.

It’s legislated to gradually increase by 0.5% each year, until it reaches 12% by 2025. This is despite pressure from some sections of government, commerce and the media.

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Increase to super guarantee rate

1 July 2020 – 9.5%

1 July 2021 – 10%

1 July 2022 – 10.5%

1 July 2023 – 11%

1 July 2024 – 11.5%

1 July 2025 – 12%

The changes are designed to allow older Australians to get more savings into their retirement funds. It will mean more retirees will be able to rely more on their retirement savings, and less on the age pension.

Employers will need to be ready to contribute the additional half per cent to meet their obligations under the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA).

The impacts will depend on how your employee renumeration is structured. Employers should start planning the implementation of the SG increase now, and letting your employees how it will affect them.

Here are the main things to keep in mind with the increase to SG obligations to take effect from 1 July 2021.

Employees remunerated under a superannuation-inclusive package

Where an employee is remunerated through a superannuation-inclusive package, in the absence of a remuneration review, their take-home cash payments will likely reduce from 1 July 2021.

You should begin talking about the potential decrease with your affected employees as early as possible. This can help you avoid queries and complaints.

If you’re planning a pay increase to keep take-home cash payments consistent, make sure you’ve appropriately modelled, budgeted and communicated this to your employees.

Employees receive SG contributions on top of their cash income

If you pay your employee’s SG on top of their cash income, you should start budgeting for the increase in SG payable for upcoming employee benefits.

Make sure you factor in the overall cost impact if there are increases planned for underlying pay, such as salary or wage increases. This will mean a dual increase to both superannuation and cash income.

Non-SG superannuation entitlements exist under contract, industrial instrument and/or policy

If you have increased or differing superannuation obligations from non-SGAA sources, you’ll need to review the interaction of those obligations with the changing SG rate.

For example, if non-SGAA obligations are on top of the super guarantee, this will require planning and employee communication.

Where non-SGAA obligations are static and don’t increase with the SG rate, make sure you have appropriate testing. You’ll need to ensure the obligations continue to cover SGAA entitlements. 

Payroll system capabilities

It’s a good idea to clarify with your payroll provider how the change will be implemented in the payroll system. We recommended doing this early, to ensure the increase in SG rate runs smoothly from 1 July 2021. This should include doing testing and exception reporting before July 2021.

New superannuation choice rules

There are also changes if you make compulsory employer superannuation contributions under, or in accordance with, a workplace determination or an enterprise agreement.

Your employees can now choose their own superannuation fund. This applies to employees operating under workplace determinations or enterprise agreements made on or after 1 January 2021. This means all new employees must be given a standard choice form, and if there is no chosen fund, the default fund will apply.

You don’t need to give existing employees and form unless:

– they request one

– a new determination or agreement is made.

For more information on the changes to SG and how it impacts you and your employees, make an appointment to speak to our team today. You can also read more about the super guarantee on the ATO website.