Budget 2021 superannuation increase: How much extra will you get?
Here's what the increased super rate means for you, and what you need to do.
The super guarantee rate will increase from the current 9.5% p.a. to 10% p.a. as of 1 July 2021. The super guarantee rate will continue to gradually increase until it reaches 12% p.a. by July 2025.
This increase to the super guarantee rate has been planned for years. However, it was not confirmed whether or not the government would stick to this plan or not, and there was a lot of speculation that they'd cancel the planned rate rise in tonight's budget. However, the government hasn't blocked this planned increase.
The super rate rise is generally good news for Australian workers (however, there are some downsides too). Here's what the super guarantee rise means for you and and what actions you should take.
How much extra super will you get?
The super guarantee rate will increase from 9.5% of your ordinary full time annual earnings to 10% from July 2021. So the amount of extra super money you get from your employer into your super fund depends on how much you earn.
Let's say you earn $85,000 a year plus super (which is roughly what the average Australian full time worker earns). Currently, your employer is required to pay you $8,075 a year in super payments. With the super rate increase, this will jump up slightly to $8,500 from July 2021. By the time the super rate rises to 12% p.a. by July 2025, you'd be earning $10,200 a year in super payments assuming you were on the same salary of $85,000.
This might not seem like a huge difference now, but it'll add up to a lot by the time you're retired (particularly if you're young!). For a 25-year old earning $85,000, an increase in the super rate from 9.5% p.a. to 12% p.a. could increase your super balance by more than $163,000 by retirement, according to Industry Super Australia's calculator.
The benefits and downsides of raising the super rate.
The biggest benefit of this scheme is that your balance at retirement will be higher, and you'll be less reliant on the age pension in retirement (at least this is the plan).
The one major downside with the super guarantee increasing is a likely halt in wage increases. According to economists as part of the Retirement Income Review, evidence suggests "the majority of increases in the super guarantee come at the expense of growth in wages". This is because employers will need to absorb the cost of paying more super to staff by making cuts elsewhere, with wages the most obvious choice.
If your super is part of your whole salary package, you'll actually be getting less take-home pay from July 2021 when the rate rise comes into action. For example, if you're earning a total package of $85,000, your super payments for the current financial year are included in that package. This means as the rate increases to 10% p.a., a bit more of your total package will be sent to your super and slightly less will hit your bank account on pay day.
Whereas if your package is $85,000 plus super, your super payments are on top of that $85,000, so your take-home pay will remain the same and you'll be getting more super.
What do you need to do?
Here's a few things you should consider doing this financial year as the super rate is increased:
- Speak to your employer. If your super is currently part of your total package, you can try to speak to your employer about getting a slight pay increase to ensure your take-home pay isn't cut. A pay increase might not be realistic for many people at the moment, but it's worth asking the question and presenting your case.
- Check your super has been paid correctly. With all this talk of changes to the super rate, it's a good time to check you're actually getting paid the correct amount of super to begin with. Your employer should be paying you super at least four times a year.
- Compare funds and switch or consolidate. If you're going to be getting higher super payments, you may as well make sure you're making the most of them by being in a low-fee, high-performing fund. Take a minute to compare super funds to see how yours stacks up, and consider making the switch. Or, if you've got multiple funds, it's definitely worth consolidating them so you're not paying multiple sets of fees.