Historic changes to superannuation

The House of Representatives has approved a gradual increase of compulsory superannuation contributions from 9 to 12%, as well as ditching the age limit of 70 and scrapping tax contributions for people earning less than $37,000 per year, from 1 July 2013.

Parliament’s decision to pass the Superannuation Guarantee Bill has been welcomed by the financial planning community, and Mark Rantall, CEO Financial Planning Association (FPA), said it was an ‘historic’ moment for Australians.

“[This will] assist our aging population with the incentive to remain in the workforce as well as maximising the retirement benefits for low income earners in Australia,” Rantall said.

“This legislation better supports all workers without discriminating against age or wage. The FPA supports initiatives taken by government to assist Australians in planning their financial futures and ensuring they are better prepared for retirement,” he added

The legislation has been hotly debated and Treasurer Wayne Swan, confirming the passing of the legislation outside parliament today, said that increased super will deliver investment back into Australian companies and Australian jobs.

The Government outlined the key benefits of increased super as:

•Expected to benefit around 8.4 million employees and will extend the superannuation guarantee to cover older workers up to the age of 75.

•Improving the fairness of the superannuation through a new concession worth up to $500 for 3.5 million low income earners who currently get no superannuation concession for their compulsory savings.

•Older Australians can make catch-up contributions to superannuation and the Government will double the contributions cap to $50,000 from 2012-13 for people aged over 50 with balances under $500,000.

•The changes are expected to increase Australia’s pool of superannuation savings by $85 billion over the next ten years and are projected to increase the retirement benefit of an average worker aged 30 by $108,000.

Mr Swan claimed the increased superannuation would increase Australia's savings pool by $500 billion by 2035 and provide extra superannuation for 3.6 million low-income earners.

The bill is now to be debated in the Senate, with the majority of measures expected to take effect in 2013, but the low income rebate is likely to commence from 1 July 2012.

Pauline Vamos, CEO, Association of Superannuation Funds of Australia (ASFA) hailed the move as a significant step forward and would allow Australians to retire with dignity.

“This reform is good for the economy, affordable, equitable and necessary,” she said.

“Today there are five working people to support each Australian aged 65; by 2050, this is projected to drop to 2.7. An increase in the SG will take the pressure off the Age Pension and assist more working Australians to a better quality of life in retirement,” Vamos said.

How to kick-start better management of your super

1. Consolidate your super account

Every time you switch jobs, you’re likely to add another super account to your retirement plan. On average, Australians hold three super accounts at any time – and yet you only need one.

You owe it to yourself to consolidate your super accounts – simplifying your super situation means you’ll cut down on paperwork, save on administration fees and reduce your tax obligations. With all your retirement savings located in the one account, you’re less likely to lose track of your super contributions. At the end of your working life, you want every dollar that you’ve put in your super account to work for you.

Transferring your super savings into one account is easy, but it’s important to check a few things before you start. Most funds will charge exit fees if you want to transfer money out of their fund. Once you provide your soon-to-be-former super fund with the required details, they are legally obliged to transfer your super into your nominated (receiving) super account within 30 days. For more information on consolidating your super, check out Searching for your super

What if I can’t remember where all my super is?

Not sure if you have unclaimed super? Perhaps SuperSeeker can jog your memory.

SuperSeeker is a free tool provided by the ATO, to help you find and claim any forgotten super.

All you need to do is punch in your name, tax file number and date of birth. It works like an online search engine, as it produces a list of any unclaimed super from its Lost Members Register (LMR) – a database of unclaimed and lost super.

However, you can also use SuperSeeker over the phone if you prefer to be assisted by a real person.

You can also lodge an online request to your fund, to move your super into one account. Too easy!

FACT: Earlier in the year, a recent Westpac national survey found that there’s almost $19 billion of unclaimed super lying around in the country. About 16% of respondents knew they had unclaimed super, but weren’t trying to find it.

2. Make sure your boss is paying up

Currently, employers are legally obliged to pay at least 9% of your ordinary time earnings to a super fund – but now that the Super Guarantee (SG) contribution is set to rise to 12%, from 2013.

Ordinary time earnings refer to the regular income you earn during your set hours of work. If the hours aren’t stated in your employment contract or award, then it simply is the hours that you usually turn up for work. Ordinary time earnings also include any bonuses, commissions, allowances and over-award payments. However, it does not include over-time earnings.

At the very least, employers must make one payment per quarter to the super fund. 

If you’re starting a new job, ask your payroll officer or HR manager the essential details about your super: how much super will be paid, how often and to which fund it will be paid into.

In some cases, your pay slip will state how much your employer has paid in super. However, you can always check by looking at the annual statement from the super fund.

What if you’re feeling suspicious about your boss? The ATO suggests that you first speak with the payroll officer or HR manager, and clarify how much the employer has agreed to pay into your account.

If what they’ve claimed doesn’t match up with the super fund’s statement or what you’ve been told by the super fund, then you can lodge an enquiry with the ATO, who will then investigate the situation.

You can also try the Super Guarantee (SG) calculator, on the ASX site. After entering your details about your wage or salary and the super contributions you’ve received, the calculator determines whether you’re eligible for super guarantee contributions from your employer and if so, how much you should receive each quarter.

The calculator will then produce a summary of these details, and confirm whether or not you’re being under-paid in super. If you’re short of receiving what you’re entitled to, the ATO recommends you print out the summary and show it to your employer. If you and your employer are unable to solve the problem, then it’s time to lodge an online enquiry with the ATO.

3.  Am I in the right super fund?

As you move through different stages in your working life, you’ll tend to value different things from a super fund. Someone just starting out in the workforce may look for a fund that keeps fees to a minimum. If you’ve been working for a solid 10 years and are starting to build your wealth, then you may want an investment strategy that brings steady returns for the long term. As you develop a sizeable super balance, you may want to be a little riskier. However, you may adopt a more conservative strategy as you edge closer to retirement.

Super funds offer a range of investment strategies, although employers usually select one of the fund’s ‘pre-mixed’ strategies for their employees. Each ‘pre-mixed’ investment plan involves a combination of investments in various types of assets, such as shares, fixed-income securities (such as bonds), cash and property. Each plan is tailored to your risk tolerance – whether you want high growth, balanced growth or conservative returns.

You can also go one step further, by choosing to invest in a particular sector. For example, you may want to just look at Australian property, or high-yielding US stocks.

Some funds also work like brokers, allowing you to purchase shares as part of your retirement plan.

Many super funds offer life insurance policies, where the premiums are paid using your super contributions. Since the fund acts as a bulk-buyer and purchases the insurance on your behalf, it ends up being cheaper for you than buying it outright. Applying for life insurance through a super fund is easier, as you don’t need to complete any medical checks beforehand.

However, the cover you receive by purchasing it through your super fund is quite limited. In using part of your super contributions to pay the premiums, you’re diverting money that could be invested for your retirement. The process of making and receiving a claim can be quite lengthy.