Small businesses are concerned about the financial effects the new superannuation compulsory guarantee changes will bring.
The increase which will begin during 2013 from 9 per cent to 9.25 per cent before reaching 12 per cent in 2019 will be seen as a direct benefit to all superannuation members, however small businesses – such as B&B Caravans feel differently.
B&B Caravans owner and payroll officer, Kate Williams who employs six people, said the increase will become a burden on their profit.
“It’s not a benefit to us, because it’s more expense on top of everything else that’s going up,” she said.
“We will have to turn up more work so that we can pay for the extra superannuation, but you can only increase labour costs up so much,” said Mrs Williams.
Independent Fund Administrators and Advisers Marketing Manager, Bart Black said the funds at IFAA feel very positive about the increase to compulsory superannuation guarantee.
“The mission of the funds is to deliver a successful retirement outcome for our members, so we know that 9 per cent won’t do that based on various research like the Westpac studies,” he said.
However, Mr Black also said that this increase might adversely affect employees’ take home pay since an employer looks at superannuation as part of an employees overall salary package.
“Unfortunately, I honestly think that our big challenge is to try and get members to see it as a benefit, and ultimately most people would prefer to have it in their hands today, rather than having it locked in a compounding interest environment. But I think also when they get a bit older and a bit wiser maybe, they’ll start to realise the benefit of that money,” Mr Black said.
The government has placed limits on the amount of before-tax contributions members can put into their account, known as concessional contribution caps.
Under 50 year olds can put a maximum of $25,000 into their account each financial year and those 50 years and over can put a maximum of $50,000, indexed annually at $5,000 increments.
There is great concern about how the increase in compulsory superannuation guarantee will disadvantage some higher income earners since the concessional contribution caps are not increasing.
“The government doesn’t really know what it’s going to do with its concessional caps, so as compulsory superannuation guarantee goes up, and if the caps aren’t going up, all they’re doing is restricting how much members can actually put in themselves,” said Mr Black.
As a result, he said this goes against the ‘philosophy’ of encouraging self funded retirement through superannuation.
If members exceed their concessional contributions cap they are forced to pay concessional cap fines which is a 31.5 per cent tax rate in addition to the 15 per cent paid by the super fund.
Powers Superannuation Services Director and self managed superfund specialist advisor, Charles Page, suggested an alternative way to manage superannuation and improve retirement funding.
“I think the best way of doing it is to have some sort of joint savings so that the individual is having to put some away at the same time the government having some level of matching so that there’s a level of compulsory of existing government superannuation and there is a sort of automatic individual savings as well so it’s not just “oh well, it’s not my problem, my employer puts that away for me”,” Mr Page said.
Mr Black said since the new superannuation laws were brought in alongside the resources mining tax, it has created uncertainty for the future.
“The only reason the increase in super guarantee ever got agreed to was on the back of the increase revenues from the resources mining tax. And that’s another interesting thing, because Tony Abbott has already said he would repeal the resources tax, so what impact will that have on superannuation guarantee increases, because the two were tied?” Mr Black said.
Another issue which was raised by B&B Caravans Owner, Kate Williams is that because of the increase in compulsory superannuation guarantee, many employers are forcing their employees to become ABN owners so that the employers themselves will not have to pay superannuation.
“You’re going to find a lot of companies once they employ people, they will make ABN’s owners so the company themselves don’t have to pay superannuation and it becomes the responsibility of the individual,” she said.
“I know of one firm at the moment who has 72 employees and come 1st of July they will say to their staff that they either get an ABN, or they will no longer have a job,” she said.
Bart Black said the staggered increase in the compulsory superannuation guarantee rates from 2013 to 2019 will allow for a smooth transition.
“12 per cent will not be enough for all individuals, particularly for those who are already well through their working lives. Contributions of up to 15 per cent would provide for a more dignified retirement and better meet members expectations,” he said.
However, Mrs Williams thinks 3 per cent is enough, and said sometimes her partner and co-owner, Graham Williams sometimes miss out on paying their own superannuation.
“An extra 3 per cent is quite a lot. Graham and I sometimes don’t even pay our own super, and that’s really wrong because we own the bloody company. But what do you do? Do you not pay your staff, and have them whinging at you, or do we penalise ourselves for it?”
In the May budget delivered by the Federal Government, the commitment to the increase in compulsory superannuation guarantee was reconfirmed, but the Government announced they would place a hold on future indexation of concessional contribution caps.