Advocacy groups lead push to lift employer superannuation guarantee from 9.5% to 12%

SmartCompany, January 22, 2018

Australian businesses could be required to put aside more money for their employees’ superannuation under proposals put forward by a number of advocacy groups in the lead up to this year’s federal budget.

The groups are leading calls for the superannuation guarantee (SG) to be lifted from its current rate of 9.5% at a much faster rate than is currently scheduled.

The superannuation rules as they currently stand will see employer super contributions for part-time and full-time workers remain at 9.5% until June 30, 2021, but the levy will gradually increase to 12% by July 2025.

However, multiple pre-budget submissions to the federal government are lobbying for no further delays in introducing the changes.

The Financial Services Council, argues in its submission that delaying the scheduled increase undermines its effectiveness of the superannuation guarantee levy as a national savings tool.

“The delay to the increase in the SG to 12 per cent will result in a cumulative impact of around $40 billion less in super savings in the system over the next seven years,” the Council argues in its submission.

“The FSC strongly recommends that there be no further delays to the increase in the SG to avoid exacerbating inter-generational pressure on public finances resulting from demographic change in Australia’s population.”

Other groups are also pushing hard for an increase in the guarantee amount, based off concerns that the current system doesn’t do enough to ensure women and those in flexible work arrangements get the most out of the superannuation system.

Advocacy group Women in Super highlights in its pre-budget submission that the current 9.5% SG amount will “not enable most women to accrue sufficient savings for a comfortable retirement”, lobbying for an increase as soon as possible.

Meanwhile, the Australian Institute of Superannuation Trustees (AIST) suggests that instead of a jump from 9.5% to 12%, the government consider a gradual increase between this financial year and 2022, which would see employers start to pay out 10% in super from next year, and 11% in 2020-21.

But Australia’s Small Business and Family Enterprise Ombudsman Kate Carnell says increasing the SG levy would come at a cost to industry.

“Employees wouldn’t accept a reduction in take home pay to achieve that, so if we increase the levy to 12%, we as employers would be paying for it,” she explains.

“So it would actually create a new cost to business and that’s a real challenge. There’s no productivity trade-off there — it’s just simply a new cost.”

And she says until profitability improves for small businesses across the country, such a cost could hit hard for many.

“A 2.5 percent increase in a salary or wages bill, for small to medium business, that is huge as a time when for many small businesses, profits aren’t huge,” she says.

“It’s true the economy is looking good, looking to the year ahead. But for sectors like retail and hospitality, profitability still isn’t great. So an extra 2.5 percent would be a huge hit for many of those small businesses.”

In its pre-budget submission, the Financial Services Council’s points to the nation’s changing demographics the source of a potential future strain on public finances.

“Between 2010 and 2050, the proportion of Australians aged 65-84 will double, whilst the proportion of people aged 85 and over will quadruple,” the Council said in its submission.

“These demographic changes will generate the problem of a shrinking tax base compounded by increased spending on health and pension costs.”

But while Carnell says these concerns need to be addressed, it shouldn’t come at the expense of small business.

“If it’ll save the money long run in old age business, that’s a good outcome. But small businesses shouldn’t be the entities to pick up the tab,” she says.

SmartCompany contacted the office of Financial Services Minister Kelly O’Dwyer for comment but did not receive a response prior to publication.