What is Superannuation Guarantee (SG)?

Ross Greenwood talks to the Australian Superannuation Funds Association chief executive, Dr Martin Fahy, about a push to guarantee superannuation payment by employers

Introduction: What is Superannuation Guarantee?

Ross Greenwood:  Right to have your company here on Work, Life, Money. Look, one of the issues that the government is trying to tackle has been for some time is what’s called a so called Superannuation Guarantee Gap. Now, just to explain this to you, there are some rogue employers who either do not pay enough superannuation into their employee’s accounts. Or otherwise don’t pay any at all.

Now, you might sit there and say, “Oh, does that really happen all that often?” Look, with most employers, the answer is no. In other words, 95% do the right thing but there is a gap and it’s not insignificant. In the 2014, 2015 year, the total amount estimated that needed to be put into Superannuation funds was, get this, $54.78 billion in Australia. In the Superannuation Guarantee Payments. How much was put it? Well, a little less. In fact, $2.85 billion less. It’s not inconsequential.

What the Government is doing, is basically giving more powers to the tax office to trying chase down and collect that $2.85 billion. Which is important, I think. Because if you’re one of those people where say, for example. A company goes broke or a company does the wrong thing, you’re going to make certain that it is your money going in there, that is actually in reasonable shape.

Now a man is also involved in all these very close, is the Chief Executive of the Association of Superannuation Funds in Australia. Let’s talk to, Martin Fahy, on the line right now. Many thanks for your time, Martin.

Interview with Dr. Martin Fahy, CEO, Australian Superannuation Funds Association (ASFA)

Martin Fahy: Good to talk, Ross.

Ross Greenwood:  We always talk about the fact that there is a gap in terms of what a person would needs to have in their retirement and what a person ultimately has. But that presumed your money’s actually being put in there in the first place by your employer. This is really designed to make certain of the employers keep their obligations to their workers.

Martin Fahy:  That’s right and you know 2.85 billion as you said is not an insubstantial amount. About 5% of all super. Half of it is attributable to insolvency where people’s contributions get lost because the employer goes insolvent. One of the thing you could do to address that, is to rank people’s Superannuation SG along side wages. To make sure that in an insolvency situation it’s right up there towards the top of the queue in terms of what get paid out from the proceed of the insolvency.

Ross Greenwood:  The other side of that also is that when there is an insolvency, generally the Federal Government would step in to provide, if you like, the employees benefit. Then, would threw the whole process off the insolvency, trying claw that money back. The classic case of that right now is Clive Palmer, Queensland Nickel and his nephew Clive Mensink. Where the Government’s basically bailed out the employees of Queensland Nickel in Townsville. Now, the Government via the liquidator of that business is trying to pursue Clive Palmer and Clive Mensink to trying to get the money back.

Now in this particular case the problem is the Government’s foot the bill. Are you suggesting that the Government would foot the bill for Superannuation as well? I suspect it would be rather reticent to do so.

Martin Fahy:  It would but in many cases when a business goes insolvent, there are some assets that can be disposed of. What we want is to make the superannuation SG up there towards the top of the list. As you said, non payment puts the burden on everybody. It takes money out of people’s superannuation. It means more people are going to be reliant on the age pension. So as the society, we want to address this.

Part of what’s being proposed and the Government come out, you know the additional powers to the ATO. We’re also talking about requiring superannuation funds to report contributions on a monthly basis. We’ve also seen the roll out of what’s called Single Touch Payroll. This is how money find it’s way through from Employer to the ATO. That should allow from the 1st of July 2018 and for smaller employers about a year later to get much more transparency and traceability around the payments that are being made.

Overall, it’s a lot of money and we need to make sure that the ATO’s got the power and the resources of the system to chase it down.

Ross Greenwood:  As you said, one thing about that is whether in fact the tax office which would have to chase these stuff down, would be almost overwhelmed. Because it is large. I mean we’re not talking small amounts of money. Trying to chase down something of the order of $2.85 billions even this year. Going back to 2009, so we’re talking there the best part of eight years ago. We’re really talking some 17 billion in total.

As you point out, largely when company goes broke. So in many cases trying to find that the identity or indeed the assets of those businesses can be really quite problematic.

Martin Fahy:  It can. The ATO at the moment dealing with about 20,000 reports that they follow up of possible non-payment of SG that they get from employees or former employees every year. They follow up all of those. We can all do our parts. Check your pay slip, look at your superannuation balance on a regular basis, contact your funds to make sure the contributions are going in there. You can also talk anonymously to the ATO if you got concern about your employer not paying your SG. And you should be talking to your employers.

So there are mechanism out there. If we’re alert and we’re keeping an eye on this, it will also help reduce the amount of non-compliant.

Ross Greenwood:  Okay. Ultimately, from most individuals point of view, I mean there are employers understand that the money needs to go in. But even then, they would be another side of being compliant and that would be all about trying to make certain that the right amount of superannuation is gone in. How does an individual really try and ascertain as to whether the right amount of money out of their pay has gone in on an annual basis?

Because one of the problem is you talk about often is insolvency. When this insolvency, the first two payments that generally don’t get paid as they’re trying to keep the business alive is number one, the tax office’s payment. Number two the superannuation payments to the staff.

Martin Fahy:  That’s right. Superannuation funds. When you’re a member of a fund and they’re taking contributions from your employer, they’re more than willing to help you. So if you quick query about whether the right amount has been taken out and you got your pay slip, give your superannuation fund a ring. Explain your situation to them and the query that you have. They’ll be able to help to work out whether they received all of your contributions or not, and what the amount that’s missing is if any.

Ross Greenwood:  Do you believe that the tax office, which is now are in a meeting with say, the Prudential Regulation Authority that looks after super fund, ASIC, the Fair Work Ombudsman, they now going to monitor the operation of the Superannuation Guarantee System.

What this is all about I presumed is trying to make certain that workers doing a fair day’s work, getting a fair day’s paycheck are also making certain that they get their fair share of that Superannuation Guarantee as they should.

Martin Fahy:  That’s correct. What we know is, the government announce the package of measures to address this. Where they’re going to, as I said, more frequent reporting, they’re going to improve the effectiveness of the ATO’s recovery powers. Stronger regimes. The use of Security Bonds for high risk employers, maybe they have concerns about. Making sure that in those situations, they have all the ability they need to go in get court orders penalties in worst cases.

Ross Greenwood:  Okay, just a couple other bits and pieces. I know you right now trying to encourage more people to get their money into superannuation. As we know, one of the things people often needs to do is top up their super. Quite often it said from the age of 20 to the age of 60, if a person needs to be self sufficient in retirement, they need to put 15% of their pay aside every week, every month, if they like to make certain they get to a reasonable balance.

Of course currently, right now, Superannuation Guarantee, compulsory superannuation 9.5%. You’ve got to put more aside and have no gaps out of the workforce. This makes it very difficult and that’s the reason why you’re running a Super Boosted Day Campaign, isn’t it?

Martin Fahy:  That’s right. What we’re saying is, let’s spend some time over the next month thinking about our superannuation and think about pledging some extra money into your super. Unfortunately, from an actuarial point of view, the fact that we live longer, age care, health care is more expensive and retirement. And the returns we’re going to get would means that as you said, we need about 15% of our salary every month. If you take time out to have families, look after parents, look after loved one, take off education breaks, etc, all of that is going to impede on the balance that you need at the end of the day.

From aspects point of view, a comfortable retirement means you need about $640,000 in your superannuation to be comfortable. For a lot of people, 9.5% of your salary won’t get you there. So anything extra that you can put in. Have one less cup of coffee every day. Decide that maybe you’re not going to keep those two subscription to online movies or whatever. Think about giving yourself a gift for retirement money. Putting some money away and putting in up to your tax free concession. Up to the $25,000 limit. Hopefully, what it’ll mean is that you won’t be dependent on the age pension.

Ross Greenwood:  I’ll tell you, good to have you on the program today. As always, people can also get in touch with that via Money Magazine which I have contact with. Of course my good mate, the Editor there, Effie Zahos. The Chief Executive though of the Association of Superannuation Funds in Australia, Martin Fahy. As always we appreciate your time here on the program.

Martin Fahy:  My pleasure, Ross.

Read and Listen to other interviews by Ross Greenwood on Superannuation.

26-09-2017 Interview of  Dian Tjondronegoro, Southern Cross University titled ” What is Activity Based Work Environments ”.

15-09-2017 Interview of  Dante De Gori, CEO Financial Planning Association of Australia (FPA) titled ” Are you happy with your lot in life? ”.

14-09-2017 Interview of  Stephen Anthony, Chief Economist, Industry Super titled ” Why our retirement savings may be at risk ”.

13-09-2017 Interview of  Justin and Bec, Trip in a Van titled ” A better way to spend your retirement ”.

08-09-2017 Interview of  Michaelia Cash, Minister for Employment titled ” How to get back to the workforce ”.

31-08-2017 Interview of  Louise Davidson, CEO, Australian Council of Superannuation Investors titled ” Bringing in the big bucks ”.

30-08-2017 Interview of  Kristy Hatcher, Litigator, Owen Hodge Lawyers titled ” Warning: Nominate your beneficiary! ”.

29-08-2017 Interview of  Kelly O’Dwyer, Minister for Revenue and Financial Services titled ” Crackdown on super non-payments ”.

29-08-2017 Interview of  Meagan Lawson, CEO, Council of the Ageing titled ” Time and Money…can you have both? ”.

24-08-2017 Interview of  Wade Tink, ex Army Officer titled ” Ex-Army officer making a difference in the developed world ”.

15-08-2017 Interview of  Framy Browne, Head of Lavan Lawyers titled ” Can De-Facto couples share their super if they split? ”.

14-08-2017 Interview of  Michael Rice, CEO Rice Warner titled ” How important is insurance to your superannuation? ”.

07-08-2017 Interview of  Sam Macedone, Macedone Lawyers titled ” Divorce and superannuation: Who gets what? ”.

07-08-2017 Interview of  Martin Fahy, the  CEO of ‎The Association of Superannuation Funds of Australia titled ” How much super should you have at your age?

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