Superannuation Guarantee (SG) Increase: A Boost for Retirement Savings

On 1st July 2024, Australia raised the Superannuation Guarantee (SG) contribution rate from 11% to 11.5% of an employee’s earnings, marking a crucial step in enhancing the country’s retirement savings system. This change is set to be followed by a further increase to 12% by 1st July 2025, reinforcing the government’s commitment to ensuring that Australians are financially prepared for retirement.

The SG rate, which mandates employers contribute a percentage of their employees’ Gross income into a superannuation fund, plays a pivotal role in Australia’s retirement savings system. As Australians are living longer, coupled with the demographic shifts of the 21st century, the government recognized the need to strengthen retirement savings to ensure financial independence in later life.

For employees, this increase in SG contributions means a higher percentage of their income will be automatically saved into their superannuation account, offering a larger retirement nest egg. Over the course of a career, these contributions can accumulate significantly, benefiting workers with more financial security during retirement.

For employers, however, the increased SG rate represents an additional payroll cost. Business owners of both Large and Small business will need to factor in the higher SG rate when calculating employee compensation and overall operational costs.

Some employees have even seen a reduction in their Take Home pay due to these increases, as these employees are on a ‘Total Compensation Package’, which includes their Superannuation. Thus an increase in their Super results in a reduction in their take home pay.

Super also results in 11.5% of an employee’s earnings being locked away until retirement, which can be as long as 50years. This exacerbates the cost-of-living crisis, as this money is not available as a pay rise to the employee.

The SG increase is part of a broader national strategy aimed at ensuring the sustainability of Australia’s retirement system, which is built on the premise of mandatory retirement saving.

As a quick comparison, take New Zealand; the NZ version of Superannuation is called the ‘KiwiSaver Scheme’, within which employers can legally contribute as little as 3% of the Gross Pay. This leaves more cash for the employees pay check, resulting in higher take home pay.

If you wish to chat more about your Super, please give us a call. A member of our friendly team will be happy to look into this for you.