Superannuation increases: what's the catch?

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It’s the start of the new financial year and whilst for many it may not feel like a big deal, it might come as surprise to some that this may mean less in your pay packet.

The Government has brought in new rules around increasing superannuation guarantee from 9% to 9.25% and whilst it sounds like a good idea, many are unaware of who is actually going to pay for this increase.

In fact it really depends on what your employment contract says and a lot of employees may be funding this increase themselves.

Your pay

A recent survey found that only around one third of employers use the remuneration approach of “base salary plus superannuation” whilst around 44 per cent adopt a “total package remuneration” which is inclusive of super.  The remaining 22 per cent of employers using a combination of both.

What does this mean for you?

Where you are paid a base salary plus superannuation, the cost to your employer will increase today by .25 per cent of your base salary.  This means that your take home pay will be the same and your employer will need to pay an extra .25 per cent of your wage into your superannuation fund.  Effectively, you have received a .25 per cent pay increase on your total cost to your employer.  For example, if your salary was $100,000 plus super, you would now be receiving a total of $109,250 instead of $109,000, an increase of $250.

Where you have a fixed remuneration package which is inclusive of super, your cost to your employer has stayed the same.  This means that your take home pay will reduce because your employer will now be adjusting your pay to take into account that your super contributions should now be 9.25 per cent instead of only 9 per cent.  Your total remuneration package hasn’t changed but an extra .25 per cent of it will be going to super instead of to you personally.

Under this arrangement, there is no obligation for your employer to increase your pay so that you receive the same amount as you did previously unless you have an industrial award or agreement that specifies that your employer must absorb the increase in super.

Employers using a “base salary plus superannuation” approach will find payroll costs increase by an amount equal to 0.25 per cent of base salaries.  Employers using the all inclusive package can, should they wish, effectively pass on the increase by way of increasing your all inclusive package and wear the cost of the increase, even though they do not need to.

So if you are an employee:

  • Check out your contract and talk to your employer about the changes and whether you are affected
  • Check your first pay packet to ensure the figures look right
  • Review your salary sacrifice arrangements as the amount that is going into super may be increased and may also exceed your superannuation contribution caps

Whether your overall pay increases or stays the same as a consequence of these changes, contributing more into superannuation will pay off over the long run which inevitably should mean a more comfortable retirement.

Read more about this and other tips: http://www.brisbanetimes.com.au/queensland/blogs/good-finance-advice/superannuation-increases-whats-the-catch-20130701-2p5wl.html#ixzz2Xk2GLPuf

Olivia Maragna is the co-founder of Aspire Retire Financial Services and has been recently named the Australian Adviser of the Year. Olivia’s advice is general in nature and readers should seek their own professional advice before making any financial decisions. 

Send your finance questions to Olivia at scoop@brisbanetimes.com.au.

Olivia Maragna
Olivia Maragna
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