In 1992 the Australian Commonwealth Government introduced a compulsory system of superannuation for employees known as the Superannuation Guarantee (SG) at a level of 3 per cent in a bid to boost retirement savings. Compulsory super payments have helped build a $2-trillion pool of retirement funds.
Employers pay 9.5% of the ordinary time earnings of their employees (including part-time and casual employees) who are aged over 18, and who are paid $450 (before tax) a month, into a complying superannuation fund or retirement savings account.
Employers with fewer than 20 employees have been able to discharge their SG obligations by paying their superannuation contributions to the Small Business Superannuation Clearing House which distributes the contributions to the various superannuation funds chosen by their employees.
However research has found employers are underpaying up to $3.6 billion per year from 2.4 million workers. Each worker being short-changed $1,489, or the equivalent of four months of super, in 2013-14.
Young singles often have high disposable incomes; however being single in retirement can be a financial challenge especially for women who have lower average superannuation balances than men. Currently the average super balance for people aged 60 to 65, is about $94,000 for women and $114,000 for men. The Australian Financial Security Authority Retirement Standard, states that singles who own their own home need retirement income of $42,433 a year to live comfortably.
Importantly as access to the old age pension tightens and the ability for the average Australian to own their home diminishes, employers not contributing to compulsory super affects the standard of living in retirement.
The study, found it was those aged under 30 in construction, hospitality and cleaning who were most at risk to be underpaid. Highlighting the inaction by the ATO to ensure workers received their full super entitlements.
The Australian Taxation Office said that it employs 150 staff to investigate reports of non-payment of SG payments by employers. The ATO receive around 20,000 reports annually from people who believe they have not had superannuation paid by their employer.
However, the report highlights that there needs to be further improvement to the resources for the ATO to recover unpaid super and enforce penalties for employers who fail to pay the SG. Additionally there is a call to introduce an enforceable mechanism for real-time payment, reporting and compliance of super payments from employers.
We have posted before the importance of financial planning. It is important that you keep track of your superannuation payments.
Importantly the SG accounts for 9.5% of your income so you should be aware of how it is being managed and paid.
Similarly you should consider life insurance, income protection and totally and permanently incapacitated cover (TPD). Although income protection may be of limited value, life insurance and TPD should be considered, in order to provide a financial safety net if you are unable to work due to accident or illness.