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Changing the Schedule for Increasing the Superannuation Guarantee – Regulation Impact Statement – Department of the Treasury

Compulsory superannuation is intended to address myopia – the tendency of people to not save adequately for retirement because it is too far into their future for them to make adequate provision for their needs. Since 1992, employers have been required to make superannuation contribution for their eligible employees, at a rate set by the Superannuation Guarantee (SG).  The SG is intended to provide for a higher standard of living in retirement than is possible from relying on the age pension alone. The SG is currently legislated to increase from 9 to 12 per cent in a stepped process which commenced from 1 July 2013 with a 0.25 per cent increase to 9.25 per cent, with a further 0.25 per cent increase scheduled on 1 July 2014.  It is then legislated to increase in increments of half a per cent each year until it reaches 12 per cent on 1 July 2019. The concessional rate of tax on superannuation contributions means that increasing the SG impacts Government revenues.  The increase in the SG was intended to be funded by the Minerals Rent Resource Tax (MRRT).    While the MRRT was originally expected to raise $26.5 billion by 2016-17, in the first 18 months of operation, the MRRT raised around $435 million on a net basis. As the MRRT has not raised the revenue expected and is proposed to be abolished, the Government announced that it would pause the increase in the SG rate for two years.  However, this announced policy was opposed in the Senate, giving rise to some business uncertainty as to the legislated minimum rate of superannuation contribution. The current proposal involves postponing the pause in the increase in the SG rate until 1 July 2015 and then extending the pause from 2 to 3 years.  The proposed delay to the increase in the SG rate is intended to provide greater certainty for affected employers as well as reduce the revenue impacts of the currently legislated schedule for increasing the SG. Due to rigidities in wage bargaining processes, as well as potential household responses to mandated minimum savings, it is unclear whether the changes to the rate of superannuation contributions will impact on household incomes or savings in aggregate.  The marginal impacts on the rate of the SG on superannuation funds are not thought to be significant.  In addition, since employers were required to adjust the rate of contribution under the status quo and under the proposed options, and provided businesses are given appropriate advance notice of the changes, this proposed option is not understood to have any incremental compliance cost impacts. The OBPR has found Treasury to be compliant with the RIS requirements.  The RIS was assessed by the OBPR as not consistent with best practice.  In particular, the RIS would have benefitted from a more balanced discussion of the business certainty outcomes under the status quo; as well as the uncertainties associated with household incomes and savings behaviours resulting from the changes.