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Is your employer paying the correct amount of super?

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There 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:

  • you can approach your employer and ask them to make the necessary contributions, and/or
  • you can request the ATO to follow up unpaid contributions.

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

Time for a quick check-up – Superannuation & Insurance

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Superannuation is not something we usually give a great deal of thought to, particularly if retirement is 10 years or more away. But perhaps it is worth investing a few moments to consider some recent changes, particularly if you have one or more super accounts that have become inactive.

 

When the government talks about a super account being inactive, they are generally referring to an account that has not received contributions or rollovers from another super fund in the previous 16 months. That is an important number to keep in mind.

 

If you have a close look at your super account statement, you may notice that insurance premiums are being deducted. This happens because many superannuation funds are required to provide a level of default life insurance cover.

 

In last year’s Federal Budget, the government announced changes to super that were designed to stop the erosion of super balances by fees, charges and unnecessary insurance premiums.

 

One important change that is due to take effect from 1 July 2019 relates to insurance for inactive account holders.

 

Where a member of a superannuation fund has an inactive account, that is, the account has not received contributions or rollovers from other super funds within the previous 16 months, the fund will be prevented from offering or maintaining insurance for the member.

 

This means that super fund members may lose valuable insurance protection.

 

The legislation places some onerous conditions on trustees of super funds.

 

Firstly, where insurance is already in place within a choice or MySuper product, the trustees of the fund are required to identify, as at 1 April 2019, member accounts that have been inactive for a period of more than 6 months. They must write to each member before 1 May 2019 advising the insurance will be discontinued from 1 July 2019, but that cover may be continued if the member wishes, and setting out the manner in which the member can opt-in to retain their insurance.

Secondly, trustees must inform members of their fund on an ongoing basis when an account has been inactive for nine months, then again at 12 months and 15 months.  

 

If a member wishes to maintain their insurance cover within their super fund, they will need to take proactive steps to ensure it is retained. This may be done by making a contribution, rolling over a benefit from another super fund, or simply instructing the super fund, in writing, that they wish to retain their insurance cover. This is referred to as ‘opting-in’. Insurance is vitally important for many people.

 

It is worth taking time to review the various super accounts you have with particular reference to the insurance that you may have. If you no longer need the insurance, then asking your super fund to cancel it may help prevent the erosion of your super balance. However, if you need the insurance, taking steps to ensure it is maintained.

 

Source:  Peter Kelly | Centrepoint Alliance

What does the election result mean for our super?

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With the return of a Coalition government, we can expect to see some of the super initiatives announced in the 2019 Budget, and in legislation that lapsed when the election was called, being reintroduced to the Parliament.

So, we can expect to see:

Increase in contribution age limits

The 2019 Budget included a proposal for people aged 65 and 66 to be able to make super contributions without having to meet the current “work test”. This proposal is now expected to be introduced to Parliament in the near future. It is due to take effect from 1 July 2020.

 

Extending the age limit for the three-year bring forward

Under current law, an eligible person may bring forward up to three year’s non-concessional contributions and contribute up to $300,000 in one year, provided they were aged 64 or younger at the start of the financial year in which they make their contribution. This age limit is to be extended to 66 from 1 July 2020.

 

Extending the age limit for spouse contributions from 69 to 74

People who make contributions for an eligible spouse up to 74 years of age will be able to claim a tax offset of up to $540. The age limit is being increased from the current 69 years. This will apply from 1 July 2020, however, a receiving spouse aged 67 or older will need to have met the work test.

 

Insurance opt-in

While legislation affecting insurance held inside super for people with an inactive account (haven’t made contributions for 16 months) has already been enacted. We can expect to see the measures extended to those with account balances less than $6,000 and for members under 25 years of age.

In each case, members will need to opt-in if they wish to have insurance cover through super.

 

SMSF membership to extend to 6 members

The legislation relating to the increase of SMSF membership to 6 people (up from 4) lapsed when the election was called. We can expect to see this legislation being re-introduced into the new Parliament.

 

Opting out of Superannuation Guarantee

Where high-income earners work for more than one employer, their superannuation guarantee contributions often result in a breach of the concessional contribution cap. The Government has plans to allow affected employees to opt-out of superannuation guarantee for all but one employer so as to avoid breaching the concessional contribution cap of $25,000.

 

Salary sacrifice arrangements

Integrity measures covering aspects of salary sacrifice contributions to super and their potential impact on superannuation guarantee contributions lapsed when the election was called. We can expect to see these measures reintroduced by the new Coalition government.

 

If you have questions about these proposed measures, and opportunities they present, you should consider meeting with a qualified financial planner.

 

Source:  Peter Kelly | Centrepoint Alliance

Change for good or change for the sake of change?

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With the significant swing against the Coalition at the October by-election in the Sydney seat of Wentworth, we turn our attention to next year’s Federal Election, expected to be held in May 2019.

If present trends are an indication of the future, we will see a change of government with the Australian Labor Party (ALP) taking the reins of power in Canberra.

So, what will a change of government mean for our super?

Hardly a month goes by without someone proposing that we change some aspect of the superannuation system. It is no wonder that the average super fund member is so disengaged with their super.

In July 2017, we saw the most significant changes to superannuation in the previous 10 years. Some changes were good, and others not so good, depending on your perspective.

Some of the initiatives the ALP has previously expressed opposition to may provide hints to changes that might be made. These include:

  1. Reducing the annual limit (cap) for non-concessional contributions from $100,000 to $75,000 per annum.
  2. Reducing the income threshold, at which the additional 15% tax becomes payable on concessional contributions from $250,000 to $200,000. Interestingly, the ALP originally proposed reducing the threshold from $300,000 to $250,000, but when the Coalition government reduced it to $250,000, the Opposition responded by announcing a reduction to $200,000.
  3. Opposition to the ability of people, with less than $500,000, in super to carry forward the unused portion of their concessional contribution cap.
  4. The ability for people to claim a tax deduction for their personal superannuation contributions.

On the positive side, the ALP recently announced plans to give women a better chance to achieve equality in superannuation by requiring superannuation guarantee contributions (currently 9.5% of salary) to continue to be paid while on government paid maternity leave. This would also be extended to men, who take paid paternity leave following the birth of a child.

Currently, employers are not required to make superannuation guarantee contributions for employees earning less than $450 per month. However, the ALP proposes to remove the minimum income threshold before superannuation guarantee contributions become payable. Unfortunately, this may lead to very small amounts being contributed to super only to be swallowed up in fees and charges by super funds and otherwise being lost to the members.

The Opposition has also made some other significant tax-related announcements, including the controversial plan to eliminate the cash refunds of excess franking credits and making changes to negative gearing for existing properties. By all accounts, negative gearing will still be available for newly-built residential properties, but not for established properties.

Without a doubt, as the next election approaches, we are going to see much posturing by political parties of all persuasions, as they jockey for control over Australia’s $2.7 trillion superannuation nest-egg.

 

Source:  Peter Kelly | Centrepoint Alliance

Super contributions – Concessional & Non-Concessional

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Most people are aware there are two main types of superannuation contributions:
1. Non-concessional contributions, and
2. Concessional contributions

Non-concessional are personal contributions we make to super, for example; contributions we make for our spouse and for our children under 18 years of age.

These are contributions we do not intend to claim tax deductions for and are usually made from our after-tax income, from savings or from the proceeds from the sale of something such as an investment property.

There are a number of important rules around making non-concessional contributions, including:

  • The usual rules around age limits. That is, contributions may be made by someone under the age of 65. However, if aged between 65 and 75, a work test must be met in the year the contribution is being made. Non-concessional contributions can’t be made by people aged 75 or over.
  •  Non-concessional contributions are subject to an annual limit of $100,000 per year. However, where a person has a ‘total superannuation balance’ that exceeds $1.6m, they are no longer able to make non-concessional contributions. The total superannuation balance is the total of all amounts a person had in super at the end of the previous financial year.
  • A unique feature of non-concessional contributions is the ability to bring forward up to three years contributions, if under age 65. This means you may contribute up to $300,000 in one year, but then nothing in the next two financial years. The contributions that may be made under the three year bring forward rule are scaled back when your total superannuation balance exceeds $1.4m.

Concessional contributions are virtually any contributions that are not a non-concessional contribution. They include contributions made by an employer, tax-deductible personal contributions, and contributions made by third parties. Also, contributions made by a parent or grandparent for children aged 18 or older are treated as concessional contributions.

When concessional contributions are received by a super fund, they are treated as income of the fund and are taxable at a rate of 15%. This is often referred to as ‘contributions tax’.

Concessional contributions are subject to a maximum cap or annual limit of $25,000. This is a reduction in the limits that applied in 2016-17.
Exceeding either the concessional or non-concessional contribution cap can have tax implications, so this is best avoided.
If planning to make either non-concessional or concessional contributions before 30 June this year, consider seeking the assistance of a qualified financial planner.

Source: Peter Kelly | Centrepoint Alliance