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Who pays your super increase from July 1?

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How come it’s so hard to get people interested in super? If you’re a 30-year old and people said to you that when you stop working they’d give you $2.2 million, would you be interested enough to look into this very generous mob of benefactors? Just about everyone who’s not into self-medication with illicit drugs would answer — definitely yes! For anyone who tells you it’s boring, you have 2.2 million reasons to say they’re dopes with a capital D.

Abbott’s delay

All these figures were trotted out when Tony Abbott told us in his recent Budget reply speech that he planned to delay the rise in our compulsory super that our bosses pay when you’re an employee. In my case, I’m my own boss inside a company and so I’m an employee of my company, so I have to pay the 9 per cent super on my own behalf! Kind of weird, isn’t it? But I have loved the forced saving idea of the Paul Keating-imposed superannuation guarantee.

By the way, this goes to 9.25 per cent in July but if Tony Abbott wins on September 14, he will delay the other rises by two years, eventually taking this forced saving to 12 per cent of our pay by 2022 instead of 2020 under Labor.

There’s a bit of a disagreement on what this two-year delay will cost. The Super Minister, Bill Shorten, saying it will cost a 30-year old $120,000 by the time he retires. However, Malcolm Coyle of the SMSF Owner’s Alliance thinks the difference will be smaller. He says a 30-year old on $100,000 would get $2,200,000 when he retires under Labor’s quicker plan and $2,160,000 under the Abbott option. That’s a $40,000 difference.

Do the maths

Bottom line with calculating super is that it always depends on what rate of return you use, plus you have to add in the costs of the fund. So if Bill used a higher return and a lower cost per year, then his return loss will be bigger.

This is a fantastic lesson for all super savers — that’s most of us — you have to make sure you’re in a good performing fund, which also is a low-cost charger.

If you want to compare your fund’s performance to the median fund out there — and you should want to if you’re of sane mind — then the median growth fund has risen 2.2 per cent in April and that means the annual return was a huge 15.4 per cent!

Now don’t get too carried away. Super funds can have negative years too and I always tell my financial planning clients that we will work on a conservative return of 7.75 per cent for our super, but we hope to do better. Last year our portfolio for shares-only clients did close to 22 per cent, but if someone played it safe, maybe having 30 per cent of their money in term deposits at 5 per cent, then the total return would’ve come down to around, you guessed it — or maybe you didn’t — 17 per cent.

Switzer’s lessons

There are some fundamental lessons I want to teach you about super:

  • It’s a long game;
  • It’s very tax-effective;
  • The more you put in early, the wealthier you will be in retirement because it is like a snowball growing off what is called compound interest;
  • You need to do research and be in good performing funds — go to www.superratings.com.au or www.chantwest.com.au;
  • You need to know you are not being over-charged and use 1 per cent as the maximum but you can do better; and
  • Super funds have bad times when stock markets crash but despite the stupid stories in newspapers, they will come back. So stick to your super strategy, realising there will be ups and downs.


Who pays?

Aside from my super lessons, the Abbott-Shorten battle over super has unearthed a tricky hip-pocket issue for employers and employees with this upcoming super increase from 9 per cent to 9.25 per cent.

Bill Shorten says the increase should be a part of the existing pay of a worker, so if your wage package is inclusive of super, your boss could reduce the cash you get in your pay packet to direct the 0.25 per cent of your wage into super.

On the other hand, if your pay is, say salary plus super, then the boss will have to pay more — 0.25 per cent into your super fund.

One of you will have to pay for Labor’s super care for our future retirement.

If you had a small business with a $1 million wage bill and all employees had a “plus super” pay package, you will be kissing $2,500 goodbye from your cash flow.

Interestingly, human resources body Aon Hewitt says 34 per cent of companies pay super on top of salaries and 40 per cent expect to increase their super payments. That means 60 per cent are a little confused about how the super changes will affect them, but it also means 66 per cent of companies’ employees could see a small drop in their take home pay after 1 July.

2.2 million or more reasons

Why Governments add complexity to the confusion that is super is beyond me, but it’s not an excuse for anyone — of sound mind — not to take an interest in super. There are 2.2 million reasons to do it, and in fact there are more if you are wise enough to put more into it.
It might sound boring, but for the smarties out there and not the dopes, super is super!

Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds. www.switzersuperreport.com.au

Published on: Wednesday, May 22, 2013

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer, Roger Montgomery, Paul Rickard and Charlie Aitken the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

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