Employers are banking $1 billion from a loophole in superannuation rules

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Making the effort to pay a bit extra each month to superannuation may not be the best strategy, depending on where you work.

Some employers are using a loophole in superannuation rules to pocket some or all the benefits from additional super contributions made by employees, according to analysis of ATO (Australian Tax Office) data.

Industry Super Australia says the legal loophole for salary sacrificing delivers a $1 billion hit to the retirement savings of 360,000 Australians. Two-thirds (61%) of those affected are earning under $80,000 per year. The average loss for a middle earner is $2,900 a year.

What happens in these salary sacrifice cases is that employers reduce the super contributions they make because they only have an obligation top pay a total of 9.5% no matter how that amount is made up.

“Salary sacrificing additional super contributions is an important way to boost final retirement savings — but it will only help if it is on top of the compulsory 9.5% paid by employers,” says David Whiteley, CEO Industry Super Australia.

“While there is a legal loophole there for employers to reduce their contributions it is not what common sense and fairness would dictate.

“Until the loophole is closed, employees should check the arrangements applying to them and seek agreement with employers to maintain their 9.5% minimum employer contributions on their full pay, on top of any salary sacrificed amount.”

Other analysis shows 2.4 million Australians are not being paid their legal super entitlements even when they don’t salary sacrifice.

Using ATO and Australian Bureau of Statistics data, Industry Super Australia and Cbus calculate that some employers are dodging compulsory superannuation payments of $3.6 billion a year.

This is $1,489 or almost four months of super for the average worker affected.