Australian employers are obliged to make minimum contributions to superannuation (super) for their employees. This is known as Super Guarantee (SG).
Currently an employer is required to contribute 9.5% of their employees’ salary (based on their Ordinary Time Earnings or “OTE”) to a super fund. Contributions must be made at least quarterly, by 28 January, April, July and October each year.
Employees can ensure their super guarantee contributions are being made in a correct and timely manner by checking their My.Gov account or with their super fund.
There are two important changes that will be affecting super guarantee contributions from
1 January 2020 and while these changes won’t affect everyone, it is good to be aware of what these are.
With the passing of the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No.1) Bill 2019 (Cth) on 22 October 2019, employers will no longer be able to offset their Super Guarantee obligations against contributions made to super under a salary sacrifice arrangement.
Where a salary sacrifice arrangement is in place, future super guarantee contributions will need to be calculated on an employee’s salary before the salary sacrifice contributions are deducted.
Change 1: Offsetting Super Guarantee
A salary sacrifice arrangement is a voluntary agreement where an employee chooses to forego part of their salary and have their employer contribute the foregone portion to super instead. This is a popular tax planning strategy as the amount contributed to super is taxed at a maximum rate of 15%, rather than at the employee’s marginal tax rate, as would be the case if it was paid as salary.
The downside of this is that a contribution made under a salary sacrifice arrangement is regarded as an employer contribution and can be used by the employer to offset their obligation to make further super guarantee contributions.
For example, if we consider an employee who earns $100,000 per annum, their employer is required to contribute $9,500 to super.
However, if that same employee asks their employer to salary sacrifice $10,000 of their salary to super, they will receive a salary of $90,000 and the foregone $10,000 will be contributed to super on their behalf.
The employer still has an obligation to contribute 9.5% of the new salary of $90,000 to super ($8,550). But, as the employer has already contributed $10,000 to super under the salary sacrifice arrangement, there is no need for the employer to actually contribute the additional $8,550 to super for the employee. Under this arrangement, the employer wins and the employee loses.
From 1 January 2020, employers will no longer be able to use salary sacrificed contributions to meet their super guarantee obligations.
Change 2: Calculating Super Guarantee contributions
At the present time, an employer can calculate their super guarantee contributions on the reduced salary after deducting salary sacrifice contributions from 1 January 2020 this will no longer be the case.
Turning back to our example, currently an employer is only required to base their super guarantee contributions on the reduced salary of $90,000.
From 1 January 2020, super guarantee contributions must be calculated on an employee’s ordinary time earnings before the salary sacrifice contributions are deducted. Once again, turning back to our example, future super guarantee contributions will be based on $100,000, rather than $90,000.
While many employers have, in the past, calculated super guarantee on the pre-sacrifice salary, and have not offset their super guarantee contributions with salary sacrifice contributions, the new legislation provides clarity and certainty.
Readers are encouraged to take an active interest in their super and ensure their employers are paying the correct amounts on their behalf.
Even though your employer includes details of superannuation contributions on your pay slips, it is important to check and ensure the contributions are actually being made to your super fund.
If you are planning to review or establish a salary sacrifice arrangement, consider seeking advice from a financial planner. Contributing too much to super can result in having to pay more tax, and not contributing enough can impact your retirement income.
Peter Kelly | Centrepoint Alliance
Age Pension – what, when and how much?
/in Financial Advice General Info /by Shellie FisherThe big question – Does paying taxes while working give you the right to expect an age pension when you decide that you want to retire? – The short answer is no.
What is the age pension?
The age pension is a safety net to support people in retirement who do not have the necessary financial resources to either fully support or partially support themselves.
When can I access the age pension? At what age does a person qualify for an age pension?
For over 100 years, the qualifying age for the age pension was 65. In 2017 the qualifying age increased by six months and will continue to increase by six months every two years until 2024, when the qualifying age will reach 67.
The following table provides a more comprehensive overview.
How do I know if I am entitled to an age pension?
This is a complicated question which is very dependent on a person’s situation. Are you single or a member of a couple, do you own your home or are you renting, how much do you have in assets and what is your income?
The current full age pension is $933.40 per fortnight for a single person or $703.50 per fortnight for each member of a couple. This full age pension is adjusted twice a year, in March and September.
The age pension entitlement is calculated under both an assets test and income test.
Why is the age pension assessed under both tests? If a person’s entitlement is less under the assets test, then what may be payable under the income test, their entitlement is determined by the assets test as this test pays the lower age pension.
In addition to a person’s age and their assets and income, a person applying for the age pension also needs to meet a residency requirement, you must be an Australian resident, and in Australia on the day the claim is lodged. You also need to have been an Australian resident for a continuous period of 10 years or have resided in Australia for a number of periods that total 10 years with at least five of these years in one continuous period.
Australia does have international social security agreements with a number of countries and residence in these countries may count towards your qualifying Australian residence.
As you can see, qualifying for the age pension is not as simple as turning a certain age. It can be complicated, and it would be advisable to talk to an expert to ensure you do receive the right entitlement when you apply.
Source: Mark Teale | Centrepoint Alliance
Important changes to Superannuation
/in Financial Advice General Info /by Shellie FisherAustralian employers are obliged to make minimum contributions to superannuation (super) for their employees. This is known as Super Guarantee (SG).
Currently an employer is required to contribute 9.5% of their employees’ salary (based on their Ordinary Time Earnings or “OTE”) to a super fund. Contributions must be made at least quarterly, by 28 January, April, July and October each year.
Employees can ensure their super guarantee contributions are being made in a correct and timely manner by checking their My.Gov account or with their super fund.
There are two important changes that will be affecting super guarantee contributions from
1 January 2020 and while these changes won’t affect everyone, it is good to be aware of what these are.
With the passing of the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No.1) Bill 2019 (Cth) on 22 October 2019, employers will no longer be able to offset their Super Guarantee obligations against contributions made to super under a salary sacrifice arrangement.
Where a salary sacrifice arrangement is in place, future super guarantee contributions will need to be calculated on an employee’s salary before the salary sacrifice contributions are deducted.
Change 1: Offsetting Super Guarantee
A salary sacrifice arrangement is a voluntary agreement where an employee chooses to forego part of their salary and have their employer contribute the foregone portion to super instead. This is a popular tax planning strategy as the amount contributed to super is taxed at a maximum rate of 15%, rather than at the employee’s marginal tax rate, as would be the case if it was paid as salary.
The downside of this is that a contribution made under a salary sacrifice arrangement is regarded as an employer contribution and can be used by the employer to offset their obligation to make further super guarantee contributions.
For example, if we consider an employee who earns $100,000 per annum, their employer is required to contribute $9,500 to super.
However, if that same employee asks their employer to salary sacrifice $10,000 of their salary to super, they will receive a salary of $90,000 and the foregone $10,000 will be contributed to super on their behalf.
The employer still has an obligation to contribute 9.5% of the new salary of $90,000 to super ($8,550). But, as the employer has already contributed $10,000 to super under the salary sacrifice arrangement, there is no need for the employer to actually contribute the additional $8,550 to super for the employee. Under this arrangement, the employer wins and the employee loses.
From 1 January 2020, employers will no longer be able to use salary sacrificed contributions to meet their super guarantee obligations.
Change 2: Calculating Super Guarantee contributions
At the present time, an employer can calculate their super guarantee contributions on the reduced salary after deducting salary sacrifice contributions from 1 January 2020 this will no longer be the case.
Turning back to our example, currently an employer is only required to base their super guarantee contributions on the reduced salary of $90,000.
From 1 January 2020, super guarantee contributions must be calculated on an employee’s ordinary time earnings before the salary sacrifice contributions are deducted. Once again, turning back to our example, future super guarantee contributions will be based on $100,000, rather than $90,000.
While many employers have, in the past, calculated super guarantee on the pre-sacrifice salary, and have not offset their super guarantee contributions with salary sacrifice contributions, the new legislation provides clarity and certainty.
Readers are encouraged to take an active interest in their super and ensure their employers are paying the correct amounts on their behalf.
Even though your employer includes details of superannuation contributions on your pay slips, it is important to check and ensure the contributions are actually being made to your super fund.
If you are planning to review or establish a salary sacrifice arrangement, consider seeking advice from a financial planner. Contributing too much to super can result in having to pay more tax, and not contributing enough can impact your retirement income.
Peter Kelly | Centrepoint Alliance
Is your employer paying the correct amount of super?
/in Financial Advice General Info /by Shellie FisherThere has been quite a bit of media focus about some employers either not paying or failing to pay the correct compulsory contributions to superannuation for their employees. So serious is the problem, new legislation has been tabled in parliament offering employers a one-off amnesty if they come forward and self-correct unpaid or short-paid contributions.
Despite the superannuation guarantee (SG) system being in place for almost 30 years (it was introduced back in 1992), an estimated 2.1 million employees are being underpaid their SG contributions by as much as $2.8 billion each year.
What is an employer required to pay?
Employers are currently required to contribute 9.5% of an employee’s salary to the employees nominated superannuation fund to comply with SG legislation. The Government is planning to progressively increase the contribution to 12% over the coming years.
The rules relating to SG are quite intricate, however when an employer fails to comply, they become liable to pay an SG charge.
SG contributions are based on an employee’s ‘ordinary time earnings’ and are payable on a quarterly basis. They must be paid by the 28th day of the month following the end of each quarter. So, for your June quarter salary, your superannuation must be paid by 28 July, and then 28 October, January and April respectively.
Exceptions and limits
There are very limited exemptions for payment of SG contributions. For example, an employer is not required to pay SG contributions for an employee in respect of those months an employee earns less than $450.
There is also an upper limit of ordinary time earnings on which SG contributions are payable. For the 2019/20 financial year, the limit is $55,270 per quarter. This is referred to as the “maximum contribution base”.
When an employee receives ordinary time earnings of more than $55,270 in any quarter, there is no obligation for their employer to make SG contributions for earnings that exceed that amount.
As a consequence, the maximum SG contributions an employer is required to make at law in 2019/20 is $5,293.40 per quarter.
Extra contributions
Some employers may pay more than 9.5%. That is dependent on the generosity of the employer and/or any obligations imposed under an employment contract or workplace agreement.
In situations where a person has two or more employers, and it is likely that their SG contributions may result in them exceeding their contribution cap of $25,000 in a year, recently passed laws allow the employee to opt-out of receiving some SG contributions. Readers who feel they may be affected should seek advice from their accountant or financial planner.
The SG for small business
One aspect of the SG often overlooked, is the fact that many small business operators regard themselves as being ‘self-employed’ and don’t believe the SG obligations apply to them, and to family members they may employ.
However, where a small business operates under a (private) company structure, the directors of the company are also regarded as employees for SG purposes. The business has an obligation to comply with the laws relating to the payment of superannuation contributions. However, with the extension of the Single Touch Payroll system to all businesses, the Australian Taxation Office (ATO) now has the tools available to more closely monitor an employers’ compliance with their SG obligations.
What can you do?
If you believe your employer has not been paying the correct level of SG contributions, you have two options:
The compulsory superannuation system is an important part of Australia’s retirement savings landscape. It is important for employees to understand their rights in respect of superannuation contributions and take an active role in ensuring their employers are complying with the SG scheme.
Source: Peter Kelly | Centrepoint Alliance
What is the cost of complacency when it comes to your Superannuation?
/in Financial Advice General Info /by Shellie FisherMany Australians, in particularly the younger ones, are so totally disengaged when it comes to Superannuation that they are not aware of what super fund they belong to, how many accounts they have with different super funds and how their super is invested.
Do you fall into this category?
Disengagement with super is highlighted by the fact that in 2017/18 the Australian Taxation Office was holding around $17.5bn of lost superannuation. This was spread over $6.2milion separated accounts, with the largest single account being $2.2m for a New South Wales individual.
Even if you don’t have any lost super and know how much you have, there are other things you need to be aware of that can have a significant impact on just how much you will have in super when you reach retirement.
Things like, how your super is invested, and the amount of fees you are paying can seriously impact how comfortable your retirement will be.
For many Australians, their compulsory superannuation contributions are being paid to a super fund nominated by their employer and is being invested in accordance with the funds’ default investment option. The super fund selected, and the investment option may be totally inappropriate for an individual member of the fund.
When we talk of investing money, we must take into account what is referred to as our “risk profile”. That is, are we someone who doesn’t like to take unnecessary risks with our money and therefore may be a conservative investor, or are we someone you is prepared to take considerable risk to see our super nest egg grow and therefore be a “growth focused” investor, or do we sit somewhere in the middle ground and are a “balanced” investor.
Many default superannuation funds have a balance investment of option as their default. But what is a balanced fund for one super fund may mean something entirely different for another super fund.
Being a member of a default balanced fund may be fine for someone who is willing to take some, but not a lot of risk in the manner in which their super is invested, but it may be totally inappropriate for a member who is approaching retirement and may feel more comfortable with a less risky approach to their investments, or for a younger member who has many years to ride out the ups and downs of the investment markets in exchange for a potentially higher return.
Selecting an appropriate investment option for their super becomes an important consideration for members of superannuation funds. An additional 1% or 2% annual investment return on superannuation savings can make a difference of hundreds of thousands of dollars for a young superannuation fund member, over their working life.
Another aspect of super that cannot be ignored is the fees being charged by super funds to manage your money. While fees for many super funds have been reducing over recent years, there are still many super funds that are charging fees in excess of those offered by their peers.
Just as an additional 1% or 2% of additional investment return can have a positive impact of a superannuation balance, paying higher fees than necessary can have a significant negative impact on superannuation savings over the course of a working life.
As a member of a super fund, you need to be aware of what is happening with your super.
Here are some questions to consider:
1. How many super fund accounts do I have? If more than one, should I consolidate them into one fund? This can save on fees – but check that you are not losing valuable insurance cover first.
2. Do I have any lost super? This can be checked by logging in to your MyGov account or asking your existing known super fund to check for you.
3. What fees am I paying for my super? In particular, am I paying fees for services I don’t need?
4. How is my super invested? Is it appropriate for my life stage and my own attitude to risk?
5. How has my super fund performed over time? Don’t simply keep chasing last year’s best performing fund but look to a super fund that provides consistent returns over a longer period and charges a fair fee for the services they provide.
For many people, analysing the appropriateness of their super fund will not be an easy task. However, help from a suitably qualified financial adviser to ensure you are, or get you back on the right track may be money well spent.
Source: Peter Kelly | Centrepoint Alliance
A few simple questions for a would-be investor?
/in Financial Advice General Info /by Shellie FisherHere are a couple of simple rules to follow and questions to ask yourself if you do decide to take the plunge and become an active equity or share investor on the Australia Stock Exchange (ASX).
The first question you need to ask yourself is whether you have the time, energy and skills required to invest in the shares listed on the ASX. According to the ASX there are, as at August 2019, 2,245 entities listed on the market valued in excess of $2,000,000,000,000 – this is trillion not billion. How do you decide which share to buy?
The next question you should ask yourself is what type of investor are you? Are you comfortable with the volatility of the market? Will you be able to sleep comfortably at night if the market or the company you have invested in starts to drop in value?
A very common problem most inexperienced investors do have is that they will buy at the top of the market when all is going well and then sell at the bottom of the market when all is going bad. This action ensures that you will always suffer a loss. You do need to be able to hold your nerve when the market is not performing.
To help you hold your nerve, you need to remember that investing on the market is a long term strategy so to ensure you are not being forced to sell at the wrong time to pay a bill have a sufficient cash reserve to meet your ongoing needs and commitments. Do not invest all your funds into the market.
Do you understand the company you are investing in?
You can buy shares in a variety of industries, like mining, retail, banking and technology. You may have a clear understanding of the industry because you have worked in it. Or you have read about the industry in the financial media. You should understand the trends in that industry and how they compare to other industries. If you don’t understand how that industry operates, then it will be difficult to work out whether you will get value for money in buying the shares.
Are you investing in a speculative high-risk venture?
Stock Exchange Listing Rules are quite onerous and the company must agree to follow these rules before it is allowed to list on the Stock Exchange. The fact that a company has been accepted for listing does not mean that it is guaranteed to make a profit or that it will represent a good investment for you.
I should point out that when you invest in your superannuation you are of course investing indirectly through your fund into the ASX. The difference is that you are putting your hard earned funds into the hands of a team of experts who have a vast amount of experience and data at their fingertips to make decisions about when to invest, when to sell and into which companies your money should be invested.
Think carefully about your choice, and then talk to your financial adviser who can provide the necessary guidance and experience.
Source: Mark Teale | Centrepoint Alliance