Industry Super/CBUS report "Overdue: Time For Action On Unpaid Super" published November 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.

And that:

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.

Basic building blocks of the Australian superannuation rort

Superannuation is generally taxed more concessionally than some other forms of saving, such as bank deposits, in recognition of the fact that superannuation saving cannot be accessed until retirement.

 * Pre-tax contributions of up to $30,000 pa ($35,000 for those aged 50 or over) into superannuation funds are taxed at a flat rate of 15 per cent in the fund.

 * It is also possible to make post-tax contributions of up to $180,000 per annum.

 * Superannuation fund earnings in the accumulation phase are taxed at 15 per cent, while superannuation fund assets that support a retirement income stream are tax exempt.

 * Most superannuation benefits to those aged over 60 are tax exempt. [Intergenerational Report 2015]

The quote above lays out the basic outline of concessional arrangements attached to the national mandatory superannuation scheme.

How does it work in real life?

In the 2012-13 financial year 9.3 million employers contributed $54 billion to their employees' superannuation funds and 1.7 million employees contributed $27.8 billion to their superannuation funds.

Of these 1.7 million employees, 571,575 individuals earn less than $37,001 a year. Currently the federal government contributes an annual lump sum payment (equal to 15 per cent of an individual's annual superannuation contributions) to a low income employee's super fund. However, from 1 July 2017 the lump sum payment will cease and the annual superannuation contributions of these same employees will be taxed at the rate of 15 per cent.

In 2012-13 there were also 183,975 non-employee individuals (or individuals receiving only a small proportion of income from work as an employee), with income derived from a personal business/self-employment, investments, government pensions/allowances, super, partnership/trust distributions, and/or a foreign source, who made personal superannuation contributions totalling $2.9 billion. These super contributions could be claimed as tax deductions.

Of these ‘non-employees’, 26,980 had annual taxable incomes of over $180,000 and made personal superannuation contributions totalling $603.07 million. Which equates to income of $22,352 per person per annum on which little or no tax is paid.

When will the Abbott Government address the imbalance in the national superannuation scheme, where the working poor are penalised and wealthy rewarded for their participation?

Some of Australia's richer citizens in 2012-13, not content with legally rorting the superannuation scheme, took their sense of entitlement to levels undreamed of by ordinary workers, as this observation in The Sydney Morning Herald on 30 April 2015 demonstrates:

Fifty-five of Australia's highest earners paid no income tax at all during 2012-13, not even the Medicare levy.

All earning at least $1 million, they managed to write their taxable incomes down to below the $18,200 tax-free threshold, although for most the exercise was expensive.

Tax statistics released Wednesday reveal that 40 of them claimed an extraordinary $42.5 million for the "cost of managing tax affairs" meaning they each paid an average of $1 million to an adviser prepared to help to bring down their taxable income, which is itself a tax deduction.

Between them they reported earning $129.5 million, an average of $2.3 million. By the time their accountants had finished with them they reported losing a combined $12.8 million.

The implausibility of someone earning $2.3 million and paying half of it to a tax adviser suggests some may be understating​ their earnings.

A tax office spokeswoman said there were "legitimate reasons why a wealthy taxpayer might not pay tax in a particular financial year".

These included tax losses through poor business performance, tax losses in previous years which could be carried forward indefinitely and dividend imputation credits.

She said the majority of wealthy Australians paid the right amount of tax.

Most of the 55 were either ungenerous or modest when it came to giving, claiming nothing for gifts. However 10 of the 55 gave between them $10.4 million, also suggesting their incomes were higher than reported. The gifts may not have all gone to charities. The Tax Office also allows deductions for gifts to political parties.

Fifteen were unsuccessful in business, losing $2.7 million between them. They carried over previous losses of $22.5 million.

They were more successful when it came to investing, receiving $8.8 million between them in so-called 'franked' dividends, and only $839,000 in unfranked dividends. Franked dividends allow the recipients to cut their taxable incomes to take account of company tax already paid.

They were also surprisingly successful landlords. Whereas 1.3 million Australian landlords claimed between them losses of $12 billion, the 15 of the 55 millionaires who rented out properties made a combined $1.6 million dollars……

An estimated 650,000 Australians are diddled by their boss. Time to ask your employers for proof that they are contributing to a super fund in your name?

The Sydney Morning Herald 27 April 2015:

By law, employers have to contribute 9.5 per cent of an employee's salary into their super fund.

However, a report in October by Tria Investment Partners found employer non-compliance amounted to $1.3 billion a year. Those affected by companies that did not allocate a super contribution were, on average, $3750 a year out of pocket, the report found.

In total, $2.5 billion is lost each year, including through the cash economy, sham contracting and businesses that go bust owing employees.

It estimates that 650,000 Australians are diddled by their boss. The worst industries for non-compliance are property services, mining, hospitality and manufacturing.

The report found that a 25-year-old whose super contributions were not paid for five years would lose 14 per cent of their total retirement fund because of compounding factors…..

About $200 million a year is lost by workers at businesses that go into insolvency.

However, Tax Office officials conceded last year that it was often "uneconomical" to chase small, individual amounts.

Association of Superannuation Funds of Australia chief executive Pauline Vamos said that was "disturbing" because the money owed was mainly to low-income earners.

Australian Taxation Office (ATO) page retrieved 27 April 2015:

Compulsory employer contributions

If you’re eligible for compulsory super guarantee contributions, your employer must pay them into a complying super fund.

Eligibility

Generally, you’re entitled to super guarantee contributions from an employer if you’re 18 years old or over and paid $450 or more (before tax) in a month. It doesn’t matter whether you’re full time, part time or casual, and it doesn’t matter if you’re a temporary resident of Australia.

If you’re under 18 you must meet these conditions and work more than 30 hours per week to be entitled to super contributions. If you’re a contractor paid wholly or principally for your labour, you’re considered an employee for super purposes and entitled to super guarantee contributions under the same rules as employees.

How much your employer should pay

If you’re eligible for super guarantee contributions, at least every three months your employer must pay into your super account a minimum of 9.50% of your ordinary time earnings, up to the ‘maximum contribution base’. (Note: prior to 1 July 2013 the rate was 9% and during the 2013-14 financial years the rate was 9.25%)

Checking that your employer is paying the correct super

If you think your employer isn’t paying your super into the right fund, or isn’t paying as much as they’re supposed to, you should ask your employer about it and check how much your super fund has received. If you still think there’s a problem you can lodge an enquiry with us.

Providing your tax file number

You need to provide your tax file number (TFN) to your employer and/or super fund on a Tax file number declaration form. If you don’t, your super fund may take extra tax out of your super contributions.

Choosing a super fund

Most people can choose the super fund they want their employer contributions paid into. If you’re eligible to choose a fund, your employer must give you a Standard choice form so you can make that choice in writing.

Working overseas

If you take up an Australian employer’s offer to temporarily work for them overseas, your employer must continue to pay super contributions for you in Australia. Your employer may be able to apply to the ATO for a Certificate of coverage so neither you nor your employer will have to pay super (or a super equivalent) in the other country.

North coast employer steals employees' superannuation

Warning to employees:
Check your payslips and contact your super fund

Sadly, yet another group of workers have discovered their boss hadn't been forwarding their superannuation to their super fund. The boss used the old trick of showing workers' super payments on their pay slips but then not forwarding those amounts to their super fund. Hmmmm, the ATO moves quickly to ensure taxation payments arrive promptly but (and this is speaking with first-hand experience) it doesn't give a flying fig about ensuring super payments are always sent. And the ATO does have that responsibility!

Today's Northern Star reports
Former staff of the We 'R' Kids childcare centre in Casino are furious their former employer had not paid their superannuation for up to five years.

In a further blow the workers appear to have lost all their entitlements.

Gathering in Casino yesterday to meet with employment advisers and others to consider their next move, the former staff said they were still in shock following the sudden closure of the centre on Friday. The centre was placed into liquidation with parent company, 888 Aust Investments Pty Ltd, racking up debts totalling hundreds of thousands of dollars.

Marlene Agresta was a former assistant at the centre who said although superannuation payments were reported on her pay slips, the funds had not been transferred to her superannuation fund since the company took over the business in 2006. She also said former staff were owed two weeks pay, which was due next Tuesday.

"We could have had two weeks pay to keep us going, but we didn't even get that - it's really slack," Mrs Agresta said.

Former employee Liz Parry said she had no idea what her next move would be, but said she would consider applying for a Centrelink payment until she found another job.

"But that is something I will leave as a last resort. I want to work, I am not the kind of person to sit around doing nothing," she said.

The whereabouts of former 888 Australia Investments Pty Ltd director James Zhang was unknown. Mr Zhang returned to China last year and has been virtually out of contact since.