Change is Coming to Australia’s Retirement Contribution Scheme; Here’s What Employers Should Know

Published: June 2021


It’s been seven years since employers with workers in Australia have dealt with an increase to the country’s retirement contribution scheme, but a change set for 1 July will require firms to plan their approach and employee communication strategy.

If you have employees based in Australia, you have probably heard of superannuation or “super” — Australia’s compulsory retirement contribution scheme. Under the scheme, employers must make contributions of a legislated minimum percentage of their employees’ ordinary time earnings (OTE) into approved superannuation funds (up to a maximum contribution base).

This legislated minimum percentage is known as the superannuation guarantee contribution (SGC) and has been sitting at 9.5% since 2014. With the SGC increasing to 10% from 1 July 2021, employers need to prepare for a change they haven’t experienced in seven years.

Why is super increasing now?

The SGC has increased many times since it was established in the 1990s, and this increase won’t be the last. Superannuation is set to increase by 0.5% each year from 2021 until it reaches 12% in 2025.

How these increases are funded within each organisation will somewhat depend on how pay is communicated to their employees – and there is no legislative requirement around how pay is communicated. Research conducted by Aon in 2020[1] found that 43% of organisations communicate a remuneration package or “total fixed” amount to employees, which includes base salary and super. Forty-one percent will communicate a “base plus” amount, where base salary is communicated separately to super. The remaining 15% of organisations use both approaches, differentiating by employee type. The table below illustrates how the same pay may be communicated in the two different ways:

The difference may seem trivial, but when the SGC percentage changes, organisations that communicate a base plus approach will likely need to foot the bill for the additional 0.5%. Organisations that communicate a remuneration package amount to their employees may choose for employees to absorb the extra 0.5% in their remuneration package, potentially resulting in a reduction to their take-home pay.

What are organisations doing to manage this increase?

While an organisation’s approach to communicating pay can dictate their approach to addressing the increase in some cases, in practice, it is not that clear cut. Many organisations with a remuneration package approach that don’t want to see their employees’ take-home pay go down can elect to increase everyone’s remuneration package by 0.5% to offset. The timing of the change effective on 1 July also coincides with most organisations’ remuneration review effective dates, which may make this process administratively easier. Aon’s research on this topic shows a mix of responses from organisations that use a remuneration package approach, as shown in Figure 1.

We recommend companies take three steps to be prepared for the new rule. First, understand your obligations. Ensure you get appropriate advice on how the increase can be funded within your organisation, as you may have contractual obligations to fulfil. Next, make sure your payroll team or provider has a plan for the change. And finally, communicate proactively to employees how the change will impact their pay. The last SGC increase was in 2014, so some employees may not realise it is increasing again.

For further information on superannuation in Australia and to understand your obligations as an employer, visit the websites of the Australian Taxation Office and the Fair Work Ombudsman

If you would like to discuss this change with Aon’s superannuation experts or gain further details and pricing of Aon’s Superannuation Guarantee Increase Survey, which was refreshed in May 2021, please contact us today. 

[1] Aon’s Superannuation Guarantee Increase Survey October 2020; refreshed May 2021

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