INVESTING SUPER GUARANTEE
Pay day’s
high cost
I
f you want to boost your superan-
nuation savings but don’t have any
extra cash to kick in, there is one
simple step that could deliver you
more dollars when you retire.
It comes down to how often your employer
is paying you super. A staggering 70% of
employees aren’t aware of how often employers
make their super guarantee (SG) payments.
Although payslips currently record super
entitlements, they don’t tell you if payment
has been made. It is a good idea to check with
your super fund, which is easy to do online.
The trick is that if you get your super quarterly
instead of every pay period – usually every
fortnight – you are losing valuable investment
earnings that compound over time.
Phil Gallagher, from Industry Super Australia
(ISA), believes that about half of employees
are paid quarterly. He says the long initial gap
between starting a job and getting your first
super contribution means that people lose
investment earnings on their contributions.
Data from the tax office shows Australians
are losing millions of dollars in interest due
to laws that allow super to be paid quarterly
rather than fortnightly.
Gallagher found that around 2.3 millionemployees aged 20-29 collectively missed
out on $35 million in investment earnings
over the 2015-16 financial year because they
were paid every three months rather than
every two weeks.
As well, 2.2 million employees aged 30-39
missed out on $55 million; 1.9 million aged
40-49, $55 million; 1.6 million aged 50-59, $50
million; 506,000 aged 60-64, $20 million; and
212,500 aged 65-69, $10 million.
For all employees aged 20-69 years, this
was a significant amount. “The investment
earnings lost by SG-eligible workers from
quarterly SG is estimated to have been $225
million in 2015-16,” says Gallagher.
He found that for a person on an average
wage working full time from 20 to 67 the
real lifetime gain from fortnightly payments
would be $12,475.
“Every penny counts in retirement, and
this interest could be the difference between
having enough and going without,” says Bernie
Dean, ISA chief executive.
ISA wants to see super payments syn-
chronised with wages. Dean says that while
payslips may record super entitlements, they
do not confirm actual payment. Currently SG
payments must be made to complying fundsby the quarterly due date, which is 28 days
after the end of each quarter. This means that
people can, in effect, be paid four months
after they receive their wages.
“We’ve welcomed all efforts to improve
compliance, but it won’t change the fact that
some employers will go on using the payment
hiatus for business cash flow,” says Dean.
“Essentially, workers are subsiding businesses
at the expense of their retirement savings.”
Being paid every fortnight could also help
people identify that they are missing out
on super. Gallagher believes that, in broad
terms, currently 3 million Australians are
underpaid an average $2000 each at a cost
of $6 billion each year.
The four-month initial gap between starting
a job and getting your first super contribution
means that people lose interest in tracking
their contributions.
“If the SG was paid fortnightly at the same
time as wages, ISA estimates that 10% of
unpaid super would be detected and paid.
So currently this equates to $600 million
per year,” says Gallagher. “So the annual
benefit of pay-cycle SG payment could be
over $800 million per year, when we add in
the investment interest loss.” MSTORY SUSA N H E LYEmployees are missing out on millions of dollars in
retirement savings because of a legal loophole