Superannuation: A tsunami of changes coming in 2022

Speaker 1:
Welcome to CPA Australia's With Interest Podcast. Bringing you this week's need-to-know information for businesses and accounting professionals.

Dr Jane Rennie:
Hello, and welcome to CPA Australia's With Interest Podcast. It's Tuesday, the 31st of May. I'm Dr. Jane Rennie, general manager media and content at CPA Australia. The end of the 2021-22 financial year is just around the corner. On Friday, the 1st of July, a large number of superannuation changes will commence. Joining me now to discuss the changes and what they mean for business and accounting professionals is Richard Webb, CPA Australia's Financial Planning and Superannuation Expert. Richard, it feels like there's a tsunami of super changes coming our way, some quite minor, but some very significant. And I'll just name a few. There's an increase in the superannuation guarantee rate, the end of the threshold for paying superannuation, the abolition of the work test for older workers, a change to the eligibility for the bring-forward rule, as well as the age for making downsizer contributions. An increase in the effective preservation age and the pension drawdown minimum rate is at half the normal rate for another year.

Dr Jane Rennie:
That's not all, but I think I need to take a deep breath before going on. So my first question to you, Richard, is why the sudden flurry of changes to the superannuation system?

Richard Webb:
Thanks, Jane. And I think I probably should mention that I suppose the number of changes seems quite a bit more than what we would normally expect, but mainly due to the fact that I think a lot of what is included in the number of changes coming through is just some fairly normal indexation of various limits and thresholds, which of course happens every year quite a lot. In addition to that though, last year's federal budget did implement basic changes, which cleared up a lot of issues that caused uncertainties for retirees and others. So essentially, there isn't really all that much in the way of large changes, but at the same time, there are changes which should be made by businesses and retirees. And these will affect businesses of all sizes, they will affect retirees and they will affect workers. In addition, lower paid workers.

Dr Jane Rennie:
So what I'm hearing is, there might be a lot of changes, but no surprises, nothing that we weren't actually aware of. Now, clearly we can't discuss all of these changes in one short episode. So I'm going to ask you about a couple of key ones starting perhaps with the biggest, the increase in the super guarantee rate from 10 to 10.5%. And I do note that we had the same sized increase last July, and it will occur again next July. So what do businesses and practitioners need to know about this change?

Richard Webb:
Well, I suppose in a nutshell, the superannuation guarantee is being progressively increased to 12%. And this year and last year as you observed, the increase has been progressively going up in half percent increments. So there are a few things that I think practitioners and their clients will need to actually look at. In particular, we think that small business clients probably should be alerted to the superannuation guarantee rate changes. It is worth reminding business clients that some contractors are entitled to superannuation guarantee contributions from their employer, even if they have an ABN as our temporary residents, including backpackers. So if your client is a contractor or considers themselves a contractor rather, but is receiving regular payments from their employer, it is quite possible that they may even be categorised for superannuation purposes as an employee, which could be worth investigating. Employers themselves really should consider checking their payroll software to ensure that the correct superannuation rate is being reported from the 1st of July via the Single Touch Payroll.

Richard Webb:
And employers should also consider looking to see how this will affect their cash flow, as this may represent an increased load on their liquidity going forward. For larger employers, this actually could be something that the employer may not even notice, because their software or their payroll provider may automatically adjust the figure upwards and it might not be until they start to see that their liquidity is affected, that this has been changed. So employees themselves may have an interesting issue present itself in that, if they're already salary sacrificing a large amount towards their super, they might need to check if that 0.5% increase in the mandatory amount from their employer, will tip them over the annual concession contributions cap, which is $27,500. And if they do, I guess they'll probably need to consider maybe winding the salary sacrifice contributions back, or alternatively consider what the repercussions might be if they breach that cap.

Dr Jane Rennie:
And I'm guessing particularly from the employer side, these are things that if you're only just thinking about this now, you might be in a spot of bother trying to get this in place over the next month. It sounds to me, these are the sorts of changes that people should have been thinking about perhaps for the last couple of months.

Richard Webb:
I think so, Jane. I think larger employers are probably going to find this a lot easier, because their payroll providers or the software that they're using may actually do this all automatically. But for smaller employers who actually do their payroll manually or via some method that involves a considerably hands-on approach compared to what a larger employer might do, that actually does mean they'll need to start considering things like in addition to the rate of superannuation that they're paying their employees, they'll also probably need to have a look at how this is going to affect their cash flow in the new financial year.

Dr Jane Rennie:
And from the employee side of the equation, I'm thinking happy days are guaranteed, half percent increase in my pay packet. Would that assumption be correct?

Richard Webb:
Look, this is going to affect a bunch of employees differently, Jane. First of all, I think it's important to note that a lot of employees will be covered by different arrangements depending on how they've been employed. And that can vary in some weird and wonderful ways. So for example, if you've got employees who are covered by an award or an enterprise agreement, or by minimum pay standards, it's quite possible that their take-home pay will be unaffected, even though their superannuation contribution amount has gone up. On the other hand, many contract employees have their pay spelled out in terms called a total remuneration package. And that package may generally include superannuation, which could mean that as the superannuation goes up by half a percent, a corresponding amount will be deducted from their take-home pay in addition to the usual tax and everything else that comes out.

Richard Webb:
So it is very much for a lot of employees dependent on how that employee's employment agreement is worded. So I think that employers themselves could actually assist their employees quite a bit here. And we would suggest that for optimal circumstances, employers should have a discussion with their employees to spell it out to them, what it means for them. And obviously of course, this will ensure that it doesn't necessarily come as a nasty surprise to those employees who have their take-home pay reduced as a result of the superannuation increase. I should point out though, that a lot of employers who find themselves in the situation where their employees package might be adversely affected in that way, have committed to already absorbing the extra costs of the superannuation guarantee rate rise. So if you are an employer who's planning on doing that, you probably should make sure that that's spelled out and clear to your employees as well, because some of them may in fact be wondering this.

Dr Jane Rennie:
Another group of employees who might do quite well out of the 1st July changes to superannuation, are workers on lower-incomes. And that's because the minimum threshold for superannuation payments, which was set at $450 a month is going to go, meaning that super will be paid on every dollar an employee earns. This is something that CPA Australia has advocated for. Richard, what industries in particular need to be aware of these changes or are likely to be heavily impacted by this change?

Richard Webb:
That's a really good question, Jane. I think that for white collar industries in particular, there may be no major changes because a lot of their workforce is likely to be full-time or significantly part-time. And in those particular instances, that may already mean that they're already getting the benefit of superannuation paid in addition to their immediate remuneration. And it may even be the case that in a lot of industries, significantly remunerated casual employees may already be receiving the benefit of superannuation contributions because as you mentioned, the threshold was 400... no, $450 per month. And if they're already significantly remunerated, they would've already met the conditions to have superannuation paid anyway. Also, I should point out that folks who are currently employed under certain awards or agreements such as in the construction industry, may already be in receipt of superannuation regardless of the employment arrangement. However, we would expect that industries such as hospitality and retail, may find that there could be some significant changes to arrangements as a result of the changes.

Dr Jane Rennie:
And one feature I find interesting about that, Richard, is that it would apply if you had an employee who worked a low number of hours for a number of different employers, they may well not have received superannuation and possibly they might well be younger workers. What I'm wondering about is if they haven't received superannuation, would that mean they would have a super account on file with their employer, but would that super account potentially be inactive and cause problems?

Richard Webb:
That is a definite problem that could occur. So remember in a lot of instances, a business might have employed someone a while back and when they took them on board, they took down their superannuation details if they've chosen a fund. And in the meantime, their account might have been deemed to be a small inactive account because obviously, a couple of years without any activity, that fund would have reached the conditions to close down the account as a small inactive account and send it off to the ATO. So in this case, you may actually need to arrange new fund details from those employees and otherwise pay into the default fund.

Dr Jane Rennie:
And again, that sounds like a bit of work for those businesses and possibly more small businesses who are mainly employing casual workers for one or two shifts a week. So they'd need to do a bit of work now to prepare for this.

Richard Webb:
Absolutely. We think it's probably a great idea to ensure that your employees details are up-to-date, but also for your employees to look at their arrangements and check that they're suitable for them as well. But as I mentioned before for optimal outcomes, it would be a good idea to make sure that that preparation is undertaken now, because of course coming up to the end of the financial year, you'll find that your systems will actually be gearing up for the end of financial year change over. And you don't want to find that you leave the updating of your employees super details until too late.

Dr Jane Rennie:
This next change is more one that affects people at the other end of their careers. And that's that the age for downsizer contributions has been lowered from 60 to 65. What can you tell me about this change and what people might need to consider if it's relevant to them?

Richard Webb:
So, the downsizer contribution scheme was implemented as part of the 2017-2018 federal budget. And the whole idea of the downsizer scheme was to allow Australians who were looking to increase their superannuation to do so through the sale of their house. And they could do that up to a total of $300,000. And presently at the moment, that would be for people who are 65 years of age. But of course from the 1st of July this year, that is going to come down to 60 year olds, which means that people who retire a little bit earlier than, I guess, what you would describe as the traditional retirement age, they'll be allowed to do that as well.

Dr Jane Rennie:
When you and I chatted about this particular change earlier, you reflected that it could potentially have implications for housing affordability. Can you explain what you meant by this?

Richard Webb:
So, I think it's worth having a quick look at the history of assistance that governments have provided over the past couple of decades to assist with housing affordability. And that does include things like first home buyers grants, both at a state and a federal level, first home super saver scheme, the First Home Guarantee scheme. All of these have been measures that over the past couple of decades, there've been demand sided initiatives. That is that they, I guess, increase the amount of money available for home buyers to buy that first home. Now, affordability itself has been highlighted as an issue for some time, but prices of houses like most things, are the product of both supply and demand factors. So what the downsizer contribution does, which is a little bit different, I guess to the schemes that I mentioned a moment ago, is to provide an incentive to release more housing stock onto the market. And hopefully, this should reduce pressure on housing affordability to some extent.

Dr Jane Rennie:
Richard, with so many changes going on right now and we've only just touched a tip of the iceberg, but it feels a bit fraught, like there's a good chance you might get something wrong. Say if you are a small business, it is important to be on top of these changes though, isn't it? Because in fact, there are serious consequences and these extend beyond just financial, there are serious reputational consequences, aren't there?

Richard Webb:
Absolutely. Reputational risk is obviously a key business risk. So I think no business ever wants to be seen as cheating their employees. And in addition to that, I think there's the relationship that an employer has with their employees as well. I think one thing that is absolutely wonderful, is the fact that employers do pay their employees on regular basis. And that doesn't matter just for take-home pay, it's for superannuation guarantee contributions as well. So the relationship between the employer and the employee, is a key problem that no employer really wants to get wrong. But also, there can be quite stiff penalties for both underpayments and late payments. And these can increase quite a bit where efforts to comply with ATO requirements to rectify a payment that's already been underpaid or is late, are not met. And business owners themselves can be personally made liable too. So preparation is a must.

Dr Jane Rennie:
Well, right. So I've listened to this podcast, I've heard the message, I want to be prepared. Where can I go for more information about the changes?

Richard Webb:
Well, obviously at CPA Australia, we would suggest that businesses in particular, should consider seeing their accountant in the first instance just to get all the technical information about what it is that they can do to comply with the changes. For employees though and retirees, we would suggest that your financial advisor is probably the best person to go to for queries about superannuation and any contributions associated with that as well. If you're a business and you are wondering about the status of employees and whether or not you've got folks from I guess the broader collection of people who you deal with, such as contractors and whether or not they're employees, you may actually have to consult with a workplace lawyer to get that satisfied. But I suppose if you are just wondering about maybe just a small item of information, or even looking at a few tools that can help you determine whether or not someone's an employee or not, the ATO website is absolutely bursting with information that you can consult on these matters. And I would also recommend that you have a good browse through there.

Dr Jane Rennie:
That's all we've got time for today. Thanks very much to Richard Webb for providing this valuable insight into these superannuation changes. Next week, Elinor Kasapidis, CPA Australia's Resident Tax Expert is going to commence a four week run of tax time episodes featuring ATO Assistant Commissioner, Tim Loh. Together, they'll cover the need-to-know changes and topics for businesses and accounting professions this tax time. If you've got a question about any of the topics we've discussed today, any of CPA Australia's broader policy and advocacy work, or you'd like to suggest a topic for With Interest, please email [email protected]. From all of us here at CPA Australia, thanks for listening.

Speaker 1:
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