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Superannuation Guarantee

Superannuation Guarantee on the Rise

Nathan Lear
Partner/Private Client Adviser
27 Nov 2011

Current legislation requires employers to pay 9% of the employee’s salary to their superannuation account, however, a historic development occurred last week with the passing of legislation that will see the level of Superannuation Guarantee (SG) rise from 9% to 12% over an eight year period.  

The reason for the increase is simple; to provide working Australians with more money to fund a comfortable life in retirement given the ageing population will increase strain on the government and reliance on the age pension. 

The concept of SG, when the Act was introduced in Australia in 1992, was to provide working Australians with superannuation to self-fund their retirement and take the burden off the government.  This was a landmark piece of legislation at the time, requiring employers to provide superannuation support to their employees. 

Now, almost a decade on, the increase of the SG is a significant step forward. Coupled with quality strategic advice and a smart investment strategy, it has the ability to significantly boost the superannuation accounts of working Australians. 

The increase in SG will ultimately be funded by employers, however, the government has proposed a reduction in the company tax rate from 30% to 29% to  assist  companies in footing the higher SG bill. The Mineral Resource Rent Tax (MRRT) legislation which was also passed last week, is an important part of the puzzle, as it will provide additional revenue to the government from the prosperous mining sector and allow the government to cut the company tax rate to 29%. 

To demonstrate the benefit the change will have to overall retirement savings, let’s look take the following example 

Assume an Australian worker earns a salary of $50,000 per annum, increasing by the rate of inflation at 3% per annum over the next 20 years, with 9% of their salary paid as superannuation. Assuming a modest investment return of 8% and no other contributions or withdrawals, this person could accumulate around $243,000 over this 20 year period.

Now let’s increase the level of SG up to 12%. The same person would now accumulate around $324,000 over the same period. That’s a massive $81,000 in additional superannuation benefits.   

It’s hard to argue against an increase in the level of SG for Australians given the long term benefits – we applaud the change. It will take the pressure off the government’s age pension and assist more Australians to maintain a better quality of life in retirement.

 

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.