Reporting super – are employers getting it right?

I was working on a submission to Treasury this week on amendments to the legislation for Reportable Employer Superannuation Contributions (RESC). While the changes aren’t particularly controversial, the submission raised a bigger issue – are employers getting their reporting obligations right?

RESC are super contributions employers make for employees where the contributions are in excess of the superannuation guarantee of 9%. They must be reported on an employee’s annual payment summary.

Why is RESC required to be reported?

The law exists so that an employee’s entitlement to government assistance programs can be determined. There was a concern that people could salary sacrifice their earnings into superannuation and become eligible for various government handouts as a result of their reduced salary and wages component.

Some Chartered Accountants have expressed concern that employers may not fully understand their obligations about what to report, or the implications of getting it wrong. Some, they say, are reporting the compulsory 9% superannuation guarantee amounts (which they are not meant to do) and others are not reporting any amounts at all!

The result is that some people are being overpaid on their government entitlements, and others are missing out!

I would be very keen to hear of other people’s observations – as an accountant, as an employer or as an employee. Would you know how to determine if the right amount was on your payment summary?

Is the answer as simple as more education for employers or is it all just too complicated?

The realities of life when saving for retirement

The Institute lodged its 2011-12 Federal Budget submission to Treasury this week. It included a number of important recommendations for superannuation.

Two of our headline recommendations in super were changes to:

1. Concessional contributions cap rules
2. Excess contributions tax.

The level of concessional contributions caps at $25,000 (for those aged under 50) and $50,000 (for those aged over 50), is simply too low. More than that, however, the current system does not adequately address an individual’s changing capacity for saving for retirement. The caps were introduced to encourage Australians to save consistently over their working life, but let’s face it; very few people have the capacity to save at each stage of life. At various times in life, we have costs like mortgages, children to feed and clothe, or school fees to pay.

It would be preferable if a person could, for example, pay less super at a stage in life when their expenses are high and more super when their expenses are lower.

The system needs to better accommodate the realities of life as a home owner, a parent or someone whose life choices necessitate lower incomes. A better option would be a carry forward provision for those caps to enable people to ’catch up’ later when they are more able to do so.

The excess contributions tax continues to cause angst for many people and the government seems reluctant to act on it. A tax this onerous, imposed as a penalty for those trying to save for their retirement within the existing rules, contradicts the government’s claims to be encouraging greater superannuation savings!

The government could implement fairer ways to ensure people only contribute within the contribution caps, such as refunding the contributions back out of the system, including any earnings on the excess contribution amounts.

This tax should not exist in its current format. Measures are needed to ensure people stay within their caps, but a system in which a person who, making an inadvertent error, contributes over their cap can be subjected to a whopping 93% tax is simply wrong.