After a six year delay, the Superannuation Guarantee increased from 9.5 to 10 percent on 1 July 2021.

It’s scheduled to increase by 0.5 percent each 1 July until it reaches 12 percent in 2025.

What is the Superannuation Guarantee?

The Superannuation Guarantee is the minimum amount that your employer must contribute to your super, calculated as a percentage of your ordinary time earnings.

The Superannuation Guarantee was first introduced in 1992, making superannuation mandatory for all Australians.

At the time, most employers had to contribute 3 percent to their employees’ funds.

The rate has steadily increased over the last 29 years.

Depending on factors such as your job type and the award under which it’s covered, or the Division of Qantas Super that you’re in, you may receive more than the minimum rate.

How the Superannuation Guarantee has changed over time
Effective date (from 1 July)Rate
20029%
20139.25
2014 to 20209.5%
202110%
202210.5%
202311%
202411.5%
202512%

Why is the Superannuation Guarantee increasing?

The increase is designed to ensure that our super balances keep up with the cost of living by the time current employees reach retirement, so they can enjoy a comfortable retirement.

According to the Reserve Bank of Australia (RBA), inflation is defined as an increase in the level of prices of the goods and services that households buy. For example, remember your parents telling you that a movie ticket used to cost $1 when they were kids? That’s an easy example of inflation at work.

Given super is a long term investment, it’s important to ensure that the dollars you contribute and invest today will be able to support you decades down the line in your retirement, when the prices of the goods and services you buy are likely to have risen significantly from where they are now.

So, while 3 percent of an employee’s wages may have been an adequate contribution in 1992, the same amount wouldn’t go quite as far in 2021.

 

What effect will the increase have on balances?

Percentages are all well and good, but let’s take a look at what the increases look like as actual dollars going to your super account:

Salary of $65,000Salary of $100,000
9.5%$6,175$9,500
10%$6,500$10,000
12%$7,800$12,000
Difference$1,625$2,500

(Remember, your employer’s contributions to your super come from your pre-tax salary. This means they’re concessional contributions, which are taxed at 15% when they reach your super account.)

So, what will those extra contributions look like over time?

According to projections from the Association of Superannuation Funds of Australia (ASFA), a 30 year old with a starting balance of $40,000, earning average career wages, could expect to have an extra $85,000 in their super when they retire at 67 was a result of the SG increasing to 12%*.

Let’s look at what their balance at retirement would be if the Superannuation Guarantee:

  • Remains at 9.5%: $449,000
  • Rises to 10% and stays at 10%: $468,000
  • Rises to 12%: $534,000

You can calculate the impact of the increases on your balance with our retirement income simulator.

 

*Source: ASFA Economic Snapshot 2 July 2021. Projections for illustrative purpose only. In reality, a worker will not earn average wages throughout his/her career.

 

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