The superannuation guarantee (SG) is the percentage of your wages that your employer pays into your super fund on your behalf. It’s an important part of the superannuation system and all adds up to support you financially in retirement. From 1 July 2021, the SG rate is 10%.
Although it has yet to fully mature, Australia’s superannuation system is already among the best in the world in terms of providing Australians with their best possible retirement1.
The first SG rate was 3%, on 1 July 1992 and rose to 9% in the following 10 years. In the 19 years following, until 30 June 2021 it only rose by 0.5%.
1 July 2021 it will finally raise again by 0.5% to 10%. Find out more below.
12% by 2025
In 2013 the government legislated that a gradual increase in the SG rate will begin from 1 July 2021. From this date, the rate will increase slowly by half a percent each year until it reaches 12% SG in 2025. While such a small increase may not sound like much – over time, it could have a big impact on your retirement savings.
An increase in SG means people won’t have to work as long
Slowly increasing the SG to 12% by 2025 means people won’t have to work as long to save the same amount for their retirement.
Even small increases to the SG will make a big difference in the long run.
Let’s look at some examples to see how it benefits members and helps re-build super balances for those who have withdrawn the maximum $20,000 of their super under the COVID-19 Temporary Early Access arrangements.Using the examples below, you can see that a rise to 12% can have a significant effect on your working life and retirement outcome.
Marco is 30 years old and earning the median Australian wage ($71,500) with a super account balance of $60,000.
With an SG of 9.5% (the current legislated rate) Marco will need to work an extra 2 years to achieve the same retirement outcome he would if the rate was increased to 12% as legislated.
If Marco withdraws $20,000 of his super early, due to COIVD-19 temporary early access scheme, he’ll need to work and extra 3 years^.
Mary is 39 years old, earning $82,000 with a super account balance of $51,000.
With an SG of 9.5% (the current legislated rate) Mary will need to work an extra year and a half to achieve the same retirement outcome she would if the rate was increased to 12% as legislated.
If Mary withdraws $20,000 of her super early, due to COIVD-19 temporary early access scheme, she’ll need to work and extra 2.5 years^.
Investment return is 6.5% a year, net of fees and tax, salaries increase at 3.5% a year, SG increasing to 12% in line with legislated increases, Retirement at age 67. All results expressed in ‘today’s dollars’ by discounting at assumed wage inflation of 3.5% a year.
Small increases have a big impact
A gradual increase to 12% may not seem like a lot, but over the long term it has a big impact.
Here are Marco and Mary again.
|The difference an increase in SG could make|
|Age||Account balance||Wage||Extra super in retirement with SG increase|
^ Assumptions: Investment return is 6.5% a year, net of fees and tax, salaries increase at 3.5% a year, SG increasing to 12% in line with legislated increases, Retirement at age 67. All results expressed in “today’s dollars” by discounting at assumed wage inflation of 3.5% a year.
Taking a long-term view helps this generation and the next
Australians are living longer and not having as many children. So, the ratio of Australians working to those in retirement will almost halve over the next 40 years.3
This means there’ll be fewer working people paying taxes to support things like the Government Age Pension, and a lot more people likely to rely on part or all of the age pension in retirement.
For Australia to afford it, working people may have to pay more tax or retired people may receive less pension. Raising the SG to 12% will increase the savings of members in retirement, helping to take some of the pressure off the broader government budget and the overall economy.
Having more super will help the current generation and the next (and the next).