What does the 12% Superannuation Guarantee mean for your bottom line? 

Superannuation benefits are rising again – and it is important for all eligible Australians to understand recent changes and their impact.

From 1 July this year, workers receiving Superannuation Guarantee (SG) contributions will get an increase in the SG rate from 11.5% to 12%. This is the final step in a phased rise initiated in 2021 by the Australian Government, which wants to help bolster the retirement savings of millions of people and minimise future demand for the Age Pension.

While many workers will welcome this latest SG hike, it does come with some implications for the management of superannuation portfolios.

First, however, it is worth restating how the SG works. In short, it is the minimum amount that employers must contribute to the worker’s super fund, expressed as a percentage of their personal earnings. The rate has been gradually rising from 9.5% in 2021 to 12% now.

This means, for example, that an employee earning $100,000 a year will also receive $12,000 in employer super contributions as part of a scheme designed to build funds for retirement over the course of employees’ careers.

In the wake of the changes, one of the key elements that workers will now have to consider are super contribution caps. They represent the maximum amount of money the government lets you add to your super each year without triggering extra tax payments.

The current concessional cap – which covers employer contributions, including salary-sacrificing arrangements, and personal contributions – is set at $30,000. The non-concessional cap – representing the maximum amount of after-tax contributions you can contribute to your super each year without incurring extra tax – is $120,000. For those with a total super balance of more than $2 million, the non-concessional cap for the 2025-26 financial year is $0.

You can keep track of your non-concessional contributions by using ATO online services.

The concessional caps tie in with superannuation elements such as salary sacrificing for employees i.e. when they voluntarily contribute additional pre-tax income into their super fund.

With the SG rising to 12%, it could push employees above the concessional contributions cap unless they monitor and manage the scenario appropriately. Excess contributions can result in tax penalties from the Australian Taxation Office (ATO).

Consider the following example: If you earn $180,000 annually, you will now get $21,600 in SG contributions. If you are also salary sacrificing $10,000, your total concessional contributions would hit $31,600 – exceeding the cap and potentially resulting in excess contributions tax.

Workers who may fall into such a position should review their salary-sacrificing arrangements with a financial adviser or accountant.

The overarching good news is that the SG rise to 12% will translate to higher potential super balances for workers over the course of their career.

Even the final 0.5% rise alone is tipped to prompt significant financial benefits in retirement. For instance, someone earning a salary of $60,000 will get about $300 to $317 more a year in super contributions under the new rules. For a 30-year-old, this single increase could add $22,000 to their super in retirement.

In another positive for families, parents who receive the government-funded Parental Leave Pay for a child born or adopted on or after July 1, 2025, will also be paid super in addition to the PLP. The amount will be 12% of their PLP, in line with the SG rate. The payment will be made following the end of each financial year in which the government PLP was paid. You do not have to do anything to receive the payment.

The SG and PLP reforms highlight the need for Australians to stay informed so they can make the most of the super system’s evolving rules.

With the SG, there is a clear expectation that the new 12% rate will deliver a material boost to retirement savings, particularly for younger Australians who will benefit over time from the hike.

Given the complexities around such calculations, however, it is wise to liaise with your trusted financial adviser to avoid any unpleasant surprises from the Tax Office. Being forewarned is forearmed.