Superannuation in Australia: A general overview

Employers in Australia collectively contribute billions of dollars every quarter to their employees' superannuation funds. Beyond just a key element of personal financial security, superannuation is also an integral compliance area for Australian businesses.

In this article, we provide a general overview of superannuation. Discover what superannuation is, how it works, the current and future superannuation rates, and a summary of recent superannuation news. Whether you’re a business owner or an HR professional, this guide can help you navigate the complexities of superannuation with confidence.

All information contained in this article is accurate as of 21.08.2024. For the most up-to-date information, please refer to the Australian Taxation Office.

What is superannuation?

Superannuation, commonly known as 'super,' is a long-term savings system designed to help individuals accumulate funds for their retirement. It's a mandatory form of retirement savings in Australia, where employers (and employees) can make super contributions into a dedicated superannuation fund.

The primary purpose of super is to ensure that Australians have a secure financial future when they retire, reducing the need to rely solely on the government pension. Super fund managers or trustees manage these super accounts by investing the super contributions in various asset classes, such as stocks, bonds, property, and cash, aiming to increase the super balance over time. This system helps individuals build a nest egg that can support their lifestyle once they stop working, providing peace of mind and financial independence in retirement.

Learn more about what superannuation is

How does superannuation work?

Understanding the operational aspects of superannuation is central to ensuring your business meets its legal obligations and supports employees' retirement savings effectively.

Types of super contributions

As an employer, you're responsible for managing two main types of super contributions:

• Superannuation guarantee (SG) contributions: These are mandatory contributions that you must make to your employees' superannuation funds based on their ordinary time earnings (OTE).
• Employee voluntary contributions: Employees can opt to make additional contributions to their superannuation through salary sacrifice (pre-tax) or after-tax contributions. As the employer, you facilitate these contributions by handling payroll deductions and transferring the funds to the employee’s superannuation account.

Types of super funds

Employers and employees can choose from several types of superannuation funds, each with unique features, fees, and suitability:

1. Retail funds: Managed by financial institutions like banks and investment companies, retail funds offer a wide range of investment options but typically charge higher investment fees to generate profits. These funds are suitable for those who value extensive investment options and are willing to pay more for tailored investment strategies.
2. Industry funds: Originally designed for specific sectors, industry funds now operate publicly, with not-for-profit organisations managing them. They generally offer lower investment fees, making them a cost-effective option for employees who prefer a simpler range of investment options.
3. Corporate funds: Companies establish these funds for their employees, either as employer-sponsored plans or as part of larger corporate arrangements managed by third-party providers. Corporate funds may offer competitive fees, especially when employers subsidise administration fees, making them ideal for employees of the sponsoring company.
4. Self-managed superannuation funds (SMSFs): Individuals who manage SMSFs serve as their own trustees, offering complete control over investment decisions, including property and shares. However, SMSFs come with higher fees and require substantial financial knowledge. They're best suited for those with larger super balances and a willingness to handle their own legal and financial responsibilities.

Employer obligations under the superannuation system

To comply with superannuation regulations, your business must fulfil several key obligations:

1. Calculating contributions: Employers need to calculate superannuation contributions based on employees' OTE. This generally includes base salary, shift allowances, and commissions, but excludes overtime payments. Accurately identifying what counts as OTE is important to ensure correct super guarantee contributions.
2. Age related consideration: Special rules apply to employees under 18 who must work over 30 hours per week to qualify for super guarantee contributions.
3. Monitor contribution caps: You need to monitor total contributions, including both SG and voluntary contributions, to ensure they stay within the annual contribution caps. Exceeding these caps can lead to additional tax liabilities for the employee and may require corrective actions.
4. Timely payments and reporting: There's a requirement for you to pay super contributions at least quarterly, with specific due dates outlined by the Australian Taxation Office (ATO. Late payments can result in penalties, including the superannuation guarantee charge (SGC), which includes unpaid amounts, interest, and administration fees.
5. Using SuperStream: You must use the SuperStream system to pay super and send contribution data electronically. SuperStream standardises the way employers make contributions, enhancing efficiency and reducing errors.
6. Providing a choice of fund: There's a requirement for you to offer eligible employees a choice of superannuation fund and provide a Standard Choice Form to facilitate this process. If an employee doesn't choose a fund, you should direct super contributions to the business’s default fund, typically a MySuper product.
7. Educate employees: It’s important to educate employees about their super fund options and encourage them to consider their personal circumstances if they wish to choose one. While they may look at the past performance of super funds to make informed decisions, it's pivotal to remind them that this isn't always a reliable indicator of future performance.

Calculating super contributions

Calculating superannuation contributions accurately is vital for compliance and ensuring employees receive the correct amount. Here’s a streamlined process for calculating superannuation:

1. Determine OTE: Calculate the employee’s OTE, remembering to exclude overtime.
2. Calculate the contribution: Apply the current SG rate (11.5%) to the OTE to determine the monthly superannuation contribution. For example, if the employee's OTE is $7,500, the contribution would be $862.50.
3. Aggregate quarterly: While you should calculate super contributions for each pay period, you pay them to the super fund quarterly, aligning with ATO deadlines (28 October, 28 January, 28 April, and 28 July each year).

Learn more about how superannuation works

What is the current super guarantee rate?

As of July 2024, the SG rate is 11.5%. This rate reflects the mandatory percentage of an employee's OTE that you must contribute to their super fund. It's important to adjust payroll systems to ensure accurate super contributions of $11.50 per $100 of OTE, instead of $11.00 per $100 of OTE. Failing to comply can lead to penalties, fines, and ATO audits, making timely updates essential.

You can expect the SG rate to increase to 12% by 1 July 2025. This phased increase is part of the Australian government's long-term plan to enhance retirement savings for employees, ensuring they have sufficient funds to support their financial future in retirement. SMEs, in particular, should adjust their financial plans to manage these increased costs effectively.

Learn more about the current SG rate

Recent superannuation news in Australia

Staying informed about the latest changes in superannuation regulations is necessary for you to ensure compliance and optimise employee retirement savings. Here’s a summary of the key updates affecting superannuation in Australia:

• Increase in SG rate: As mentioned, the SG rate increased from 11% to 11.5% on 1 July 2024, with another rise to 12% planned for July 2025. This change requires you to update payroll systems and manage financial planning to accommodate higher contributions.
• Changes in contribution caps: Effective 1 July 2024, the concessional contributions cap increased from $27,500 to $30,000, and the non-concessional cap rose from $110,000 to $120,000. You should adjust payroll systems and communicate these changes to employees to optimise their retirement savings.
• Introduction of 'Payday Super': By July 2026, there'll be a requirement for you to make super contributions with each pay cycle instead of quarterly. This shift aims to enhance the integrity of the superannuation system and will require adjustments in payroll processes to comply with the new regulations.
• Superannuation for young Australians: Lowering the superannuation eligibility age from 18 to 16 is in discussion, with an aim to boost retirement savings. It's a good idea to prepare for potential changes that could impact your payroll systems.
• Expansion of the First Home Super Saver Scheme: The scheme now allows first-time homebuyers to contribute up to $50,000 for a deposit using their super balance, up from $30,000. This change encourages young Australians to engage with their super funds and save for home ownership.
• Paid parental leave and superannuation: Starting July 2025, the government will include super contributions in government-funded paid parental leave to help close the retirement savings gap caused by career breaks for childcare.
• Increased support for managing super through technology: The expanded use of Single Touch Payroll (STP) and other government initiatives are making it easier for you to manage superannuation compliance and reporting. These technological advancements aim to streamline superannuation management and reduce administrative burdens.

Learn more about recent superannuation news

Confidently manage superannuation with Rippling

Leveraging Rippling’s all-in-one HR solution makes managing superannuation easier. It reduces manual tasks and the likelihood of errors, and keeps your focus on key business activities.

• Simplify the Standard Choice Form process: Rippling integrates the distribution and collection of the Standard Choice Form into its seamless onboarding process, allowing new employees to choose their preferred superannuation fund on day one. This automation ensures compliance while reducing administrative tasks.
• Stay compliant with automated updates: Rippling’s platform automatically adjusts to changes in superannuation rates and contribution caps, ensuring your business remains aligned with current regulations. This eliminates the need for manual updates, reducing human error and compliance risks.
• Automate superannuation calculations and contributions: Rippling streamlines the calculation and submission of superannuation contribution data to the super clearing house (SuperChoice) with each pay cycle. This process guarantees accurate, timely deposits, fulfilling Superannuation Guarantee obligations without manual oversight.
• Handle payment errors and reprocessing efficiently: If superannuation contributions are rejected, Rippling automatically refunds the amounts into a designated Australian bank account, allowing for swift re-attempts at allocation. This method reduces disruptions and ensures that all contributions are properly managed without manual intervention.
• Manage quarterly payments effortlessly: Rippling supports quarterly superannuation payments through the ABA file option, ensuring seamless alignment with the ATO’s reporting deadlines. This automation simplifies the process, making compliance straightforward.
• Streamline reporting and maintaining accurate records: Rippling’s integration with the ATO’s SuperStream system streamlines reporting and record-keeping. This functionality helps maintain accurate records, ensuring your business is prepared for audits and meets compliance requirements with ease.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.