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By Ashley J Palmer, Senior Consultant and Actuary, Retirement and Financial Management, Aon Hewitt, Sydney
Australian employers are facing a number of significant legislative changes that will impact the framework and administration of employee benefits, most notably superannuation. It is essential that employers are aware of these changes, their statutory obligations and the potential impacts on their employees. Some of these changes are effective from July 1, 2012.
These changes have come about in response to the profound demographic shift occurring in Australia. With an ageing workforce and an increased percentage of employees transitioning to retirement, there is an immediate need to increase the efficiency of superannuation and benefits schemes and maximize retirement incomes as life expectancies continue to increase.
Some of the changes that employers will need to consider include:
Stronger Super
Government reforms aimed at making the superannuation system stronger and more efficient. The reforms will occur through three distinct channels:
| 1. | The creation of simple, low cost, default superannuation products called "MySuper". Employers will have to decide which MySuper product will be their default super fund. |
| 2. | The introduction of the SuperStream package of measures, aimed at making everyday transactions easier, cheaper and more efficient. Features include new requirements for reporting super contributions on employee payslips and also standardized e-payment of super contributions. |
| 3. | The overall strengthening of governance, integrity and regulation surrounding the superannuation system. |
Organizations will need to utilize effective transition and communication plans to manage the administrative burden of these changes. Moreover, given the increased governance requirements, we expect that many stand-alone corporate funds will be considering transition strategies to multi-employer master trusts.
Increase to the Superannuation Guarantee (SG)
The minimum mandatory employer contribution to superannuation will increase incrementally from 9% pa to reach 12% pa by July 1, 2019.
This increase will significantly affect payroll processes and could increase employment costs. Accordingly, remuneration packages may need to be reconsidered.
Taxation Changes
Three major taxation changes now impact employers and employees as of 1 July 2012:
| 1. | The limit on pre-tax (concessional) employer* and employee superannuation contributions for over 50s is reduced to $25,000 for each tax year. |
| 2. | Where pre-tax (concessional) employer* and employee superannuation contributions result in an employee’s adjusted taxable income exceeding $300,000 pa, the tax on these excess contributions is doubled from 15% to 30%. |
| 3. | Access to the living-away-from-home-allowance (LAFHA) from 1 October 2012, will be limited and based on a new set of strict criteria. |
To account for these changes, organizations may need to consider restructuring their remuneration and benefits plans for affected employees.
Contact
For more information on how these or any other legislative changes might affect your organization, please contact Ashley J Palmer on +61 2 9253 7021 or email him at ashley.j.palmer@aonhewitt.com.
*including any fund administration and insurance charges paid by the employer on behalf of employees. Treatment under defined benefit plans differs.
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