Superannuation to change from July 2021
The Federal Government has confirmed changes to superannuation, effective 1 July, to increase savings potential and reduce fees. Here is how these changes impact you and your employees.
Increase to super guarantee contributions
Super guarantee is the minimum percentage of earnings that employers are required to pay into employee super funds. The current rate is 9.5%, which is unchanged from July 2014.
From 1 July 2021, the minimum super guarantee rate will increase to 10%, a 0.5% increase to the super contributions your organisation is required to pay into employee super funds.
Contribution caps will increase from 1 July 2021
The concessional contribution cap limits the amount an individual can contribute to their super savings each financial year. Concessional contributions include all employer contributions (super guarantee and salary sacrifice arrangements) and voluntary personal contributions claimed as a tax deduction in personal income tax returns. Non-concessional contributions are generally voluntary contributions where no tax deduction is claimed.
From 1 July 2021, the concessional contribution cap will increase from $25,000 to $27,500 per financial year. The non-concessional cap will also increase from $100,000 to $110,000 per financial year.
The increase in contribution caps will allow individuals to deposit additional contributions into their super fund to boost their retirement savings.
Super funds will be ‘stapled’ to individuals when they change jobs
From 1 July 2021, superannuation accounts will be ‘stapled’ to individuals and follow them when they change jobs.
Currently, if an individual changes jobs and does not nominate a super fund, the new employer pays super contributions to the organisation’s nominated default fund. From 1 July 2021, if a super fund is not nominated, the new employer will be required to pay super contributions into the employee’s most recent super fund account (unless they select another fund).
This change aims to ensure all superannuation savings are consolidated into one super fund, rather than individuals having multiple accounts. This will reduce the probability of paying unnecessary fees and multiple insurance premiums, leading to super balances diminishing over time
YourSuper comparison tool will change the way super is viewed
From 1 July 2021, an interactive YourSuper comparison tool will be available to the public. The comparison tool will:
- list super funds ranked by fees and investment returns
- name super funds that have been identified as underperforming
- show an individual their current super fund accounts and prompt them to consider consolidating if they hold more than one super account.
Low fees and solid investment returns assist with growing super fund balances. This tool will allow individuals to compare these factors against other super funds to ensure their super fund is working for them.
Underperforming super funds will be named and shamed
Super funds will soon be subject to an annual performance test. Funds deemed to be underperforming will be required to inform their members. Super funds that fail two consecutive annual performance tests will be unable to accept new members until their performance improves.
The impact of investment performance on retirement savings can be substantial, and this measure ensures members have the opportunity to take action if their super fund is underperforming.