How an increase in Superannuation Guarantee may result in a pay cut
Superannuation guarantee (SG) rates will increase from 1 July 2021. While this is good news for our retirement nest eggs, some employees may feel the impact with a deduction to their take-home pay. This article explains the SG rate changes, salary differences, and options available to those who are affected by a deduction to their wage.
The superannuation guarantee (SG) is the minimum percentage of ordinary earnings that employers must contribute to superannuation for their eligible employees.
After years being stuck at 9.5% the Superannuation Guarantee (SG) rate is on the move again. It increased from 9.5% to 10% on 1 July 2021, and will increase by a further 0.5% each year until it reaches 12% from July 2025.
More money into super to provide a more secure retirement? What’s not to like about that? Well, it depends on your employment contract as to whether you are in for a welcome bonus or a nasty surprise when each annual increase in the SG kicks in.
Salary plus super, or super included?
If you are paid a base rate plus super then your employer should increase your super contributions by 0.5% with no change to your take-home pay. This is the likely to be the most common (and the best) outcome. It’s possible some employers may take the increases in SG into account when negotiating future wage increases, but this is an indirect and by no means certain outcome.
It’s a different story if you are paid on the basis of a total package, including super. In this case, and provided it doesn’t drop your pay rate below award minimums or the minimum wage, your employer may deduct the additional SG from your take-home pay. Not such a desirable outcome.
What can you do about it?
Just because an employer can reduce take-home pay to make up for the higher SG doesn’t mean they will. Many employers will wear the cost, and if that’s the case with your employer, all well and good. Also bear in mind that employers may use both types of contract, so just because your colleague at the next desk is paid on a salary plus super arrangement, you may not be.
With the outcome entirely up to your employer it’s important to talk to them. Find out if you are affected, what they plan to do, and if necessary see if you can negotiate an appropriate increase to your total package. If you have union representation this may be helpful.
It will all come down to the strength of your bargaining position. Employers who want to keep good employees and avoid the cost of employee turnover may be more willing to carry the cost of the increase. It’s also possible for your employer to take one approach this year and another next year, depending on business conditions.
While the drop in take-home pay after the initial SG increase may be relatively small, by 2025 it will be a much greater amount. It’s important to have that conversation with your employer as soon as possible.
Learn more about the SG rate increase here.
At Hejaz Financial Services, our Islamic Superannuation has a range of investment options designed to help you achieve your long term goals. We are also known to have outstanding performances and we keep our costs low to pass on your Superannuation returns to you.
If you wish to speak to one of our qualified wealth advisers, you can schedule an appointment or give us a call at 1300 043 529. To find out more about Australia’s Best Performing Islamic Super Option FY19/20* you can visit our website.
We are also Australia’s First and Only Islamic Pension Option, you can count on us to help you retire Islamically.