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Superannuation is an integral part of an Australian worker’s retirement plan, providing many retirees with financial stability in their later years. With a percentage of an employee’s wages paid into the fund of their choosing (or the nominated default fund of their employer) for life, it amounts to the biggest investment many Australians will make.
The Federal Government often tinkers with superannuation, whether to address tax issues or help Australians save for retirement in a more efficient way. A prominent super change of late was an increase in the super guarantee.
As of July 1, 2023, the super guarantee, that being the percentage of your wage that your employer is required to pay, increased from 10.5% to 11%. The super guarantee will continue to rise in 0.5% increments until it reaches 12% in 2025.
Maintaining this increase was mooted in the Federal Budget back in May–but it wasn’t the only superannuation change announced by Treasurer Jim Chalmers at the time.
Here are the superannuation changes Australians need to know about, either now or in the near future.
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Superannuation Changes Explained
Superannuation Guarantee Increased to 11%
What does this mean? This means that employers now have to pay superannuation contributions of 11% of an employee’s earnings when the employee is either over 18 years old, or under 18 years and works more than 30 hours a week.
When is it coming into effect? It came into effect on July 1, 2023
Super Guarantee to Increase to 12%
What does this mean? The 2023 Federal Budget maintained that the super guarantee will continue to increase by 0.5% increments each year, meaning the percentage of an employer’s salary which is paid into their superannuation fund will increase.
When is it coming into effect? July 1, 2025
Super Contributions to Be Made Each Pay Day
What does this mean? Employers will be required to pay employees’ superannuation contributions at the same time that they pay salary and wages, meaning that it will have to be paid on at least a monthly basis, rather than quarterly.
The change is expected to address the estimated $5 billion per year of unpaid super, making it easier for the ATO to monitor employer compliance.
SuperRatings chief executive officer Kirby Rappell says that for members, this requirement, and the increase in the superannuation guarantee rate, will be the changes that are “most easily” seen.
“With the impact of compounding returns over members’ lifetimes, these two changes will result in higher balances when they reach retirement for the majority of Australians,” Rappell says, as super paid more frequently will then compound more frequently.
When is it coming into effect? July 1, 2026
Changing Tax Concessions for Balances With More Than $3 million
What does this mean? Individuals with a super balance exceeding $3 million will have an additional 15% tax placed on investment earnings. This will bring the tax rate from 15% to 30% for earnings on the portion of the individual’s superannuation balance that exceeds the $3 million mark.
For earnings on assets below the $3 million threshold, the tax rate will remain at the highly effective 15% unless held in a retirement pension account, in which case the tax rate will remain at 0%. (Note: a retirement pension account is often used to pay out your super in regular instalments during retirement, almost like a wage, and retirees don’t pay tax on these pension payments from age 60.)
According to Industry Superfund, this tax change will affect around 80,000 Australians in 2025/26.
When is it coming into effect? July 1, 2025
Indexation of the Transfer Balance Cap
What does this mean? The transfer balance cap, which is the amount you can transfer into the tax-free retirement pension account, has increased from $1.7 million to $1.9 million. However, for those who have previously transferred super into a retirement account, this personal transfer balance cap will differ.
When is it coming into effect? It came into effect on July 1, 2023
Eligibility Age Lowered for the Downsizer Scheme
What does this mean? The Downsizer Scheme allows eligible participants who sell their home to make a one-off contribution to their super of $300,000, outside the concessional tax requirements and other rules. The eligibility age was recently lowered from 60 to 55 years, opening up the scheme to more Australians.
When is it coming into effect? It came into effect on January 1, 2023
Why Is the Superannuation Guarantee Increasing?
Parliament legislated a gradual increase of the superannuation guarantee to 12% in 2025 in an effort to bolster balances and ensure retirees were not overly reliant on the age pension.
Low super balances have been a concern for decades, with economists in 1995 warning that the current rate of superannuation was likely to leave Australians with insufficient super for a comfortable income upon retirement.
Currently, the Federal Government has accepted that the super guarantee will need to increase to 12% in order to meet the basic needs of Australian retirees. By gradually increasing the guarantee 0.5% each year in a staged fashion, less pressure is placed on businesses and employers than if the entire increase happened at once.
As to whether the increase will continue after 2025, Rappell says that SuperRatings does “not expect to see the superannuation guarantee rate rising beyond the 12% in the foreseeable future”.
What Is the Retirement Income Covenant?
While the above changes to superannuation either took place this year or are proposed for the near future, they aren’t the only changes that have been made to superannuation in recent years. Another vital change has been the introduction of what is known as the retirement income covenant.
The covenant has been in discussion since the 2014 Financial System Inquiry recommended that superannuation funds need to offer members comprehensive products for retirement.
As of July 1, 2022, the retirement income covenant became a legal obligation for super funds. Put simply, it is the requirement that super funds have a documented strategy of members’ needs for retirement and a plan on how to service those needs.
Rappell believes it is a change that is of the utmost importance for years to come, telling Forbes Advisor that the “ongoing implementation and review of the retirement income covenant is likely to be the most important change”.
“As more Australians reach retirement age, with significant sums of money in their superannuation accounts, the retirement income covenant means they will have the ability to access a range of retirement products and guidance through super funds,” he says.
“If members can select the retirement solution most suitable for them with a high level of confidence, this has the potential to significantly improve the long-term retirement lifestyle of current and future retirees.”
Who Will Benefit From the Changes to Superannuation?
There are many reasons why the Government is implementing changes to superannuation, and different demographics will benefit from different changes.
Of course, the Australian Taxation Office will also benefit from the changes–especially considering the Government has allocated an additional $40 million in funding for the ATO to better enforce super compliance.
This is in addition to changing the frequency of superannuation payments, which is also expected to assist the ATO in monitoring compliance from employers and help address the $5 billion a year in unpaid super.
As for the public, Rappell believes there is one demographic who will benefit most: young working Australians.
This is because they will have more superannuation to draw upon when retiring due to the planned changes, as well as a “more mature retirement framework when they reach retirement age” thanks to the retirement income covenant.
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Frequently Asked Questions (FAQs)
What is the current rate of the superannuation guarantee?
As of July 1, 2023, the superannuation guarantee is currently 11%. This will increase in 0.5% increments annually before reaching 12% in 2025.
Will the superannuation guarantee go higher than 12%?
According to data from the ATO, the superannuation guarantee will reach 12% on July 1, 2025 and will stay at that same level onwards. Of course, the Government may submit new legislation that adjusts this data and increases the superannuation guarantee in 2026 or subsequent years, but it is unknown whether that will occur.
Should I change to a different superannuation fund?
It is always worth periodically reviewing your superannuation fund to see if it is providing you with the best returns. To compare super funds, read our best default superannuation funds in 2023.
