The word ‘superannuation’ is capable of eliciting many responses. Bring it up around the under 35s crowd and their faces are likely to glaze over while they tune out.
Over 50s will either lament their lack of investment in their younger years or skite gleefully of the comfortable retirement they look forward to.
But for employees, it can be a confusing terrain to negotiate.
This year, 2013, marks the beginning of the introduction of some of the biggest changes to superannuation laws in Australia since it was formally introduced in 1992, and most certainly in the last 10 years, under the Superannuation Legislation Amendment Bill 2012.
The five main changes to supperannuation are:
1. An increase to the rate of employer superannuation contributions
2. Introduction of compulsory superannuation paymentsto staff over the age of 70
3. Introduction of the ‘My Super’ account product
4. Digitalisation of employer superannuation payments
5. Documentation of superannuation payments on employee payroll advice.
The changes are the result of the Cooper Review, which concluded in 2010 and assessed the superannuation industry’s efficiencies 20 years out from the introduction of compulsory SG by employers.
Damian Hill, CEO of Rest Industry Super, a superannuation fund provider specifically for retailers, said the changes are designed to improve and simplify the system over the longer term. He said the best way for retailers to ensure that they comply with the new changes is to firstly be aware of them.
“While there may be a little bit of a change necessary, it should reduce the overall burden on employers going forward,” explains Hill.
“There is a move specifically to electronic contributions that retailers need to be mindful of, but we know that many accounting firms are working behind the scenes to implement these changes to support employers.
“Employers are not in this by themselves. There’s plenty of support, and from our point of view we are happy to give them a call to work things through,” he said.
Prior to July 1, employers were only legally required to make contributions to superannuation on behalf of employees under the age of 70 years at a rate nine per cent of their ordinary wage (excluding overtime). But on July 1, 2013, for the first time since its introduction, the rate of superannuation payments, known as the Superannuation Guarantee or SG increased.
An increase of just 0.25 per cent to 9.25 per cent on July 1 is the first of a series of staggered increases over the next seven years to 2020, culminating in a total increase of three per cent overall to 12 per cent of an employee’s annual ordinary earnings. Employers are also now legally required to make SG contributions for any employees over the age of 70, which was not previously the case.
Hill says that the increased contributions rate is the best known of the raft of changes coming into effect. “Ultimately the retirement income system in Australia is being looked at in terms of what income is adequate to retire on in the future and that is driven by the contributions put in on the way through, the investment earnings while it is in there, the cost or fees that are charged, how long you work and what period it has to last. “Following that review, the nine per cent was seen as not providing an adequate income over the longer term.
This is a long term policy, and that’s why it has gone through to 12 per cent, so that more Australians will be able to retire with a comfortable level of retirement,” said Hill.
“Wage and entitlement costs are part of the cost of doing business in the retail environment, so retailers need to plan for it and how it will impact on their business in its entirety.”
In other changes,from July 1 2013 funds are now able to offer a simple, low cost default superannuation product called My Super to improve the simplicity, transparency and comparability of default superannuation products. My Super accounts, provided as an option by most funds, are designed to be used for employers to place SG contributions in cases where an employee has either not provided any investment direction to the fund, or where the member’s entire balance is invested in the fund’s default investment option.
“My Super is intended to be a simple and cost effective superannuation product, so that for the significant amount of Australians who do not make the choice to get engaged early when they join an employer, the retailer has somewhere to put their money,” says Hill.
“These people are not being charged for all the bells and whistles that exist on some of the superannuation products out there.
“So what that means is that for all retailers from January 1, 2014, employers must pay super contributions to a My Super product on behalf of an employee unless they choose their own fund.
“For most employers their existing superannuation fund will become a My Super product.”
Despite this, retailers are advised to check with their superannuation provider and make sure they are going to have a My Super product or chose a different default superannuation fund.
A little further down the track, but not too far away, July 1, 2014 will signify the start of compulsory electronic payment and data transfers between super funds and employers.
Medium (more than 20 employees) and large businesses will need to ensure that all SG contributions can be made digitally, with small businesses of less than 20 employees required to implement the electronic changes the following year.
“One of the things we hear is that retailers are now having to pay to multiple superannuation funds and there’s a burden of administration that is growing because of that choice of fund,” said Hill.
“What we’ve been looking to do at Rest is to provide a mechanism where employers can pay for all their employees via a clearing house and we forward those contributions through to all the other superannuation funds selected by employees.
“But we need the whole system to be electronic to be able to take more of that away from employers, because that is certainly where employers have had an increasing burden over the last five years.
“There’s some clearing houses around now and in the next 12 to 18 months it will be very common, but it requires employers to make amendments to pay electronically, so both sides have to play.”
Also of note to retailers, and yet to be clarified by the Government, is the change whereby employers will be required to place super contributions for employees on pay slips, including the date the contributions were made.
“I think this will be problematic for a lot of employers who have big payroll systems.
“The details for exactly how and what needs to be disclosed have not come out yet, so at this stage I would be just keeping a watching brief should this come out in more detail.”