Breakthrough Accounting takes us through some of the awesome changes taking place this week and highlights some of the challenges you should have on your radar.

Later this week, the pension guarantee rate (SG) will drop from 9.5% to 10% as part of the legislated increase over the next five years.

In addition, the recent federal budget saw the announcement of a series of new retirement measures.

The purpose of this article is to provide an overview of these super changes and highlight some of the practical challenges of implementation.

Increase in ILI rate

While there has been a lot of speculation in the preparation of the federal budget that the government will abandon or reduce the planned increase in ILI rates due to COVID-19, no statement has been made to this effect.

This means that the minimum SG rate will drop from 9.5% to 10% as of July 1, 2021, with further increases of 0.5% each fiscal year thereafter until it reaches 12% from of July 1, 2025.

Impact of the increase

While the impact of this ultimately depends on how your organization is structured, we believe it can affect cash flow in the following ways:

  • increasing retirement expenses (when employees receive their super in addition to their hourly rate or salary);
  • by increasing labor coverage premiums (because labor coverage is calculated on the basis of wages and retirement pension); and
  • by increasing social charges.

In some cases, an increase in a company’s pension expense may cause it to become subject to payroll taxes for the first time.

Whether this increase will ultimately constitute an additional employer funding requirement or be funded from existing compensation costs will depend on whether employers are operating:

  • a “salary plus retirement” arrangement, resulting in an incremental additional retirement cost; or
  • a “total cost of employment” scheme, under which employers will finance the increase through a reduction in existing wage rights.

Practical considerations

We see that the main challenge for the employer in implementing this increase is that of timing.

The key date employers will need to consider is the date pay (including superannuation) is paid. Indeed, for payments of wages and salaries made from July 1, 2021, the minimum SG contribution rate of 10 percent will have to be applied.

As an example, suppose an organization operates on a bi-monthly payroll cycle ending June 28, 2021. Then, it processes payroll on June 29, 2021 and pays employees on June 30, 2021, the rate of existing SG of 9.5% will apply.

However, if the payroll is not processed by June 30, 2021 and paid by July 1, 2021, the new SG rate of 10% will apply. This notwithstanding the fact that the entire pay period decreased in June.

We recommend that employers clarify with their payroll provider by July 1, 2021 how the change will be implemented in the payroll system, including performing tests and exception reports to ensure that the implementation of this rate change is proceeding smoothly.

We note that significant penalties will apply to employers who do not pay superannuation properly, so a clear understanding of your obligations will be crucial.

Removal of the $ 450 / month threshold

In addition, as part of the federal budget, the government announced that it would remove the minimum income threshold of $ 450 per month, below which employees do not have to be paid OGS by their employer.

This measure aims to improve the fairness of the retirement system and means that all workers will have the right to save for their future, regardless of their income. This is a very positive announcement given that approximately 300,000 additional people will receive payments from SG, including 63% women.

This measure is expected to come into effect on July 1, 2022, however, this will depend on when Royal Assent of the enabling legislation takes place.

Increase in the First Home Super Saver program (FHSSS)

The government also announced that it would increase the maximum disbursable amount under the FHSSS from $ 30,000 to $ 50,000 to help Australians save for their first home.

Voluntary contributions made from July 1, 2017 up to the current limit of $ 15,000 per year will count towards the total amount to be released.

This measure is expected to come into force on July 1, 2022.

Reduce the age of eligibility for workforce reduction contributions

It was also announced that the government will lower the age of eligibility for downsizing contributions from 65 to 60 in order to free up the stock of larger homes for younger families.

This contribution allows individuals to make a one-time after-tax contribution to their retirement pension up to a maximum of $ 300,000 per person (or $ 600,000 per couple) from the proceeds of the sale of their home, subject to respecting certain criteria.

It should be noted that the staff reduction contributions will be taken into account for the age pension assessment tests.

This measure is expected to come into force on July 1, 2022.

Repeal of the working test

The government also announced that it would allow people aged 67 to 74 (inclusive) to make or receive nonconcessional pension contributions or wage sacrifice without meeting the job requirement.

Currently, people in this age group can only make voluntary contributions or receive contributions from their spouse if they meet the work criterion (work at least 40 hours in a period of 30 days during the financial year concerned) or otherwise satisfy an exemption.

The move aims to simplify the rules governing pension contributions and increase the flexibility of older Australians to save for their retirement.

This measure is expected to come into force on July 1, 2022.

Other super-related announcements in the budget

  • Individuals will be allowed to exit from a specified range of legacy pension products over a two-year period, with full access to all underlying capital.
  • Residence requirements for self-administered pension funds and small funds regulated by APRA will be relaxed.
  • A new electronic sharing mechanism will be put in place to make it easier to identify retirement pension assets in family law proceedings.
  • Additional funding will be provided to APRA and Super Consumers Australia to support stronger outcomes for consumers and enhance transparency and accountability.
  • Additional funds will be provided to the ATO to administer the transfer of unclaimed superannuation funds directly to KiwiSaver.
  • The government will not implement a measure to extend the early retirement pension to victims of domestic and domestic violence, however, it will provide $ 998.1 million for initiatives to support victims of such violence.

What does all this mean?

Apart from increasing ILI levels, all of the above measures are not yet legally binding.

In our opinion, it will be vital for finance teams to proactively manage these changes as soon as they come into effect and to keep abreast of the legal mechanisms for implementation (for example, the question of timing, especially since d (other changes should overlap the period June / July).

At Breakthrough Accounting, we have over 25 years of payroll experience. We pride ourselves on keeping abreast and informed of changes in this area and are particularly well informed about the accounting and legal nuances associated with the implementation of new measures.

As an accounting firm specializing in providing NFPs with an end-to-end solution including accounting, bookkeeping and payroll, we are very passionate about working alongside NFPs and allowing them to see progress for their organizations.

If you or your organization have any questions regarding the above, please Contact us. We would love to hear from you.


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