After 1 July this year, your employer must increase your super contributions from 9.5% to 10% of your
salary. This contribution rate will then increase by 0.5% p.a. for the subsequent 4 years until it reaches 12%. This could boost your retirement savings but only if you optimise two things.
The government was tempted to delay this increase
It has been reported that the government was contemplating delaying increasing the Superannuation Guarantee Charge (SGC). The increase in SGC was proposed by the Gillard government back in 2012 but it was subsequently delayed until 1 July 2021. The Morrison government was probably concerned about whether businesses could afford higher employment costs during a pandemic. In addition, some commentators have suggested it would deter higher wage growth because any possibility for wage increases would be thwarted by higher superannuation costs.
In my opinion, not delaying the super increase is the right decision. The underlying economy is recovering better than expected. And an increase in wage inflation in the short term is probably unlikely anyway for a variety of reasons. Forcing people to increase the amount they save for their future retirement is a good thing for them personally and the country as a whole.
What effect will this have on your future super balance?
The table below sets out the projected increase in super balance depending on your income and your super balance today. There are three numbers in each corresponding cell. The first number represents the percentage increase over a 10 year period, the second over 20 years and the third over 30 years. For example, if your super balance is $200k and your income is $150k, then this increased SGC rate over the next 5 years is projected to increase your super balance by 6.1% in 10 years, 9.1% in 20 years and 10.3% in 30 years.
See table at https://www.prosolution.com.au/super-increase/
As we can see, the increase in SGC really helps people with lower super balances the most.
However, if you already have a healthy super balance, the increase in contributions probably isn’t going to have a material impact on your retirement. Instead, fees and returns will have a greater impact on your future balance.
It is important to highlight that most people will need to invest in assets in addition to super to be able to enjoy a very
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