What will the proposed SG increase to 12% mean for you?
Did you know that the Government is on the verge of introducing legislation that will see the Superannuation Guarantee (SG) rate increase? Research from Russell and the Australian Institute of Superannuation Trustees has revealed 50% Australians are aware of the proposed increase, and one third knew the SG rate would increase to 12% from the current 9% by 2019-2020, which is encouraging considering it's a relatively new initiative which is still yet to be legislated.
Now that you know a bit more about the SG changes you may still be wondering what this all will mean for you and your retirement savings nest egg. The simplest answer is that it will mean different things for different people and it will depend on a number of variables such as what life stage you are at, whether you have / or are likely to have broken employment patterns (e.g. going on maternity leave) and what income bracket you fall into.
Let's take considerations around varying life stages as an example. The SG increase is likely to be phased in over an eight year period and, if legislated, won't take full effect until 2019-20. This means some of you, largely baby boomers, will be well in to your retirement by then, or will have little time to reap the benefits of the additional 3%, so it's important to consider other income-generating strategies.
Even Gen Ys who have a much longer stretch of working lives ahead should question what a reasonable standard of living really means – simply enough to get by or living the lifestyle to which you have become accustomed? On Budget night 2010 the Government announced that if the legislation comes into effect, an average male worker aged 30 is expected to have an extra $108,000 by retirement and a 30 year old female on average weekly earnings with a broken work pattern is expected to have an extra $78,000 by retirement.
A 3% increase might seem a lot but the SG alone is not likely to get you that annual cruise or a holiday home on the coast.
While this increase is a positive step towards improving the financial security of a large number of Australians, it's worth assessing your own desired retirement lifestyle, goals and objectives and map your contribution strategies accordingly.
What is the Superannuation Guarantee (SG)?
Introduced in 1992, the Superannuation Guarantee refers to the compulsory superannuation contributions made by employers on behalf of their employees. An employer must, by law, contribute an equivalent of 9 per cent of an employee's salary.