Wednesday, 14 December 2016
How much super should you have right now and how much do you really have?
The Industry Super/CBUS report Overdue: Time For Action On Unpaid Super was published in November 2016.
The report states:
Introduced in 1992 at three per cent in lieu of a wage increase and as a means of boosting retirement savings, the Superannuation Guarantee (SG) is now a matter of right.
Today, employers are required to contribute at least 9.5 per cent (up from 9.25 per cent in 2014) to the superannuation accounts of every worker earning $450 plus a month.1
In doing so, Australia has amassed a $2.1 trillion savings pool that, in shifting economic winds, increasingly holds both the nation and its people in good stead.
However, two new reports suggest some employers are undermining the system by not meeting their payment obligations. Separate analyses conducted by Industry Super Australia (ISA) and by Tria Investment Partners for Cbus indicate the non-payment of superannuation entitlements could be widespread and, in dollar terms, increasingly significant. These findings suggest further work is needed to fully understand the scale of this problem with consequential changes in ATO audit activity.
It also states:
Responsibility for ensuring SG payments are made rests almost entirely with individual employees.
High levels of disengagement, low levels of financial literacy and extreme information asymmetry mean that employees are ill-equipped to determine or address SG non-compliance.
Those most at risk of not having their SG contributions paid are younger, lower income earners working in industries with high levels of casualisation and sham contracting, including construction, cleaning and hospitality.
Small and medium-sized businesses are least likely to pay SG.
While individual experience may vary enormously, average impact of SG non-compliance is the loss of 7 months of contributions for a person earning the average wage in 2014.
Put baldly this report highlights the fact that Without action unpaid super will reach $66 Billion by 2024.
Key points in the report:
Two new reports suggest retirement incomes are being undermined by employers who are not meeting their Superannuation Guarantee (SG) obligations on behalf of workers.
These reports estimate that employers failed to pay at least $3.6 billion in SG contributions in 2013-14. The two components of the combined estimate are:
• Underpayment of SG for PAYG employees and sham contractors which Industry Super Australia (ISA) estimates was at least $2.8 billion in 2013-2014
• Unpaid superannuation for workers employed in the cash economy which separate research by Tria Investment Partners for Cbus estimates added an additional $800 million.
This equates to 30 per cent of workers not being paid part or all of their compulsory super.
Younger workers, low income earners and workers in the construction, hospitality and cleaning industries were most likely to miss out on superannuation.
On average, affected workers missed out on $1,489 or almost 4 months of superannuation contributions.
Using Tria’s projections and its own, ISA estimates that unless action is taken, unpaid superannuation will amount to over $66 billion by 2024.
These estimates are conservative - using a compliance benchmark of 8.5% of assessable income rather than the statutory rate of 9.25% in 2013-14. If these estimates took into account a loophole that allows employers to count employees’ voluntary contributions, via salary sacrifice, towards their SG obligations, the problem would be greater.
Government action is warranted. It should:
• Urgently investigate these new estimates
• Undertake detailed analysis of the types of industries and employers that do not pay SG
• Adequately resource the Australian Tax Office (ATO) to recover unpaid SG
• Immediately close the loophole that allows employers to count salary sacrifice amounts towards their SG obligations
• Investigate the feasibility of introducing real-time payment, reporting and compliance of SG using new Single Touch Payroll (STP) technology
• Introduce a direct, clear, enforceable mechanism for superannuation funds to recover unpaid SG from employers on behalf of members
• Retain existing penalties against employers who fail to pay SG and introduce stronger penalties, including personal liability for directors of companies that do not meet those obligations
• Extend the government safety net that protects unpaid wages and entitlements when a company becomes insolvent to protect unpaid superannuation.
The full report can be downloaded here.