Superannuation assists Australians in providing for their retirement. When an Australian works for an employer, that employer is required to contribute 9.5% of the employee’s salary into a super fund. This is called the ‘Super Guarantee’, and there are plans to increase the contribution amount in coming years. Individuals are able to invest in their own supers and there are incentives offered by the Government in some instances, such as co-contributions and the low income super contribution.
Why does superannuation exist?
Superannuation is a system that allows Australians to be secure in their retirement, reducing the burden placed on welfare systems and ensuring that individuals are provided for at a rate which is relative to their earning capacity and lifestyle. Over the course of a normal career, individuals amass a significant sum in their super, which is simultaneously grown through investment by the super fund. This provides a nest egg which creates income through interest and can be distribute to the individual after a certain age (between 55 and 60, depending on their year of birth).
How does superannuation impact businesses?
Employers need to ensure that they are contributing super regularly, or else they may be required to pay penalties and lost interest. Further, they are responsible for selecting a super fund for their staff, which comes with a number of regulations. For example, super funds are not permitted to offer incentives or inducements to an employer to make them select their fund. These incentives can take many forms, but the most common offers include corporate hospitality, holidays or discounted products and services. If a business has been offered an unlawful inducement by a super fund, they should report it to ASIC immediately.
Employers are also expected to work with their employees for voluntary contributions, which can be deducted from the employee’s pay and put into their super fund instead.
As with all financial matters, businesses must keep records of their employee’s salaries and super contributions for 7 years in case they are audited.
When do employers not have to pay superannuation?
There are only two situations where an employee is exempt from the super guarantee:
When their employee is paid less that $450/month, before tax
When their employee is under 18 and works 30 hours per week or less
All other employees are entitled to their regular super contributions.
What types of super funds are available?
There are four types of super funds, with different joining requirements:
Corporate fund: individuals can only join if they work for a particular company
Industry fund: individuals can only join if they work in a particular industry (though some are open to everyone)
Retail fund: anyone can join
Self-managed super fund: an individual and up to three others can join
Employers need to research their industry and determine whether there is a default industry fund which they should be using. If there is not, employers should select a fund which offers strong performance over a period of 5 years or more, and has low fees.