Budget Steps on Super Are Small But Significant

According to the ATO, there is currently around $16 billion in lost superannuation. This is about $1,000 for every working age person in Australia and highlights one of the challenges with superannuation — the difficulty of engaging with something that is both complex and won’t provide its core benefit until a long way into the future.

However, this week’s budget reveal a change which, coupled with other recent superannuation changes, will help keep Australians engaged with a system that will help provide for them in retirement.

More Frequent Contributions

Tuesday's budget announced a change to the frequency of superannuation payments, from a minimum standard of a quarterly payment now to a payment at the same time as you get paid. If you are paid fortnightly, your superannuation will have to be paid fortnightly. The start date is still some time away, 1 July 2026, however I think this announcement has three important benefits.

The first benefit is around seeing superannuation as a central part of income earned. By receiving a regular payment into superannuation, tied to when income is paid, more people might see the link between the effort that they put into work and their superannuation benefits. The current minimum standard, of employers making a quarterly payment to superannuation, means that link between effort and receiving a contribution to superannuation is somewhat distant.

The second benefit is that it puts employees in a much stronger position to see when superannuation benefits are not being paid. It is almost a cliche to find that, as a company collapses, they have not been paying employee superannuation benefits for some period of time. Regular superannuation payments at the same time as income is paid, whether that is weekly, fortnightly or monthly, will provide employees with the opportunity to see exactly when superannuation is not being paid.

Dollar Cost Averaging

The third benefit is that the regular flow of money into superannuation becomes a more precise 'dollar cost averaging' opportunity. Dollar cost averaging is powerful as it allows an investor to use regular investments to buy more assets when prices have fallen.

A regular and frequent contribution of money into superannuation by employers will allow the superannuation account holder to be confident that money is being invested to take advantage of downturns as opposed to only seeing contributions every three months and perhaps missing the buying opportunity presented by a market downturn. Because superannuation is such a long-term investment opportunity for most people, it is easier to see the buying opportunity in a downturn and take advantage of it with regular contributions.

Support for this new measure on super came from the Financial Advice Association of Australia (FAAA) as well.

“We welcome the proposal on superannuation payment timeframes to align superannuation payments with wages from July 2026, previously announced but confirmed in the Federal Budget handed down tonight,” FAAA CEO Sarah Abood said in a press release. “This will help support the retirement incomes of Australians by making it much less likely that super payments will be missed.” 

Two Other Recent Changes

The change from this week’s budget sits alongside two other recent superannuation changes that combine to arguably make superannuation more attractive and relevant. The first of these is the higher contributions rate and the second of these is the ability for an employed person to make tax deductible superannuation contributions.

Let's start with the contribution rate, currently at 10.5 per cent of a person's income. This is the highest that it has ever been, meaning that there has never been a better opportunity for a person to create a significant store of wealth in their superannuation fund. It is worth remembering that it was only the start of the 2003 financial year, a little over 20 years ago, that the 9 per cent contributions rate came into place. For people retiring today, the vast majority of their superannuation was accumulated with contribution rates well below 10 per cent. For workers starting today, the 10.5 per cent employer contributions provide a great reason to be engaged with their superannuation fund.

The final change is around the rules that allow an employed person to make personal superannuation contributions and claim a tax deduction. For a long time, the only way to do this for an employed person was through a salary sacrifice arrangement – a somewhat complex process that often required planning ahead. However, employed people can now make a direct contribution to their superannuation and claim a tax deduction for them - well worth remembering at this time of the year as end of financial year tax planning starts to become important. If you have some extra cash, you can now make a personal contribution to your superannuation (that will be taxed at 15 per cent) and claim a tax deduction for it, provided you are within the $27,500 cap for concessional contributions.

Conclusion

Superannuation provides challenges for governments - balancing the generous tax advantages of the scheme (tax deductions on income contributed, earnings in the fund and then tax free earnings while paying a pension, and tax free pension payments) against the cost of providing those tax advantages. Perhaps we don't acknowledge the small changes that keep improving superannuation for employees. The combination of a higher than ever 10.5 per cent contributions rate, the transparency of superannuation contributions being paid at the same time and frequency as income, and the ability to more easily make direct superannuation contributions and claim a tax deduction are three recent changes that make superannuation more attractive than it has been before.