For most of us, retirement is one of those concepts that’s so far away it’s practically abstract. And when you’re looking down the barrel of another 30+ years in the workforce, saving for retirement is all too easily put on the backburner.
Of course, the magic of compounding means that the earlier you start setting aside for retirement, the better off you’ll be. Fortunately, employees in Australia are entitled to superannuation, whereby employers are required to contribute a percentage of the employee’s earnings into a nominated superannuation account.
At its core, the concept of superannuation is pretty straightforward. However, there are any number of complexities that can be difficult for the average person to get their head into. In this post, we want to get into the Maximum Super Contribution Base, or MSCB.
In Australia, all employers are required to pay a certain amount into each employee’s nominated superannuation fund, on a quarterly basis. At present, this amount is calculated at 9.5% of an employee’s ordinary earnings. This rate, called the Superannuation Guarantee, changes periodically – you can view the rates for the next few years here, or in the table below.
So, presently, if you earn $12,000 each quarter, your employer should be paying $1140 into your super fund each quarter.
Employer Super Requirements for Low-Income Earners
However, there are some exceptions to the Superannuation Guarantee, mostly centreing around low-income earners and high-income earners.
When it comes to low-income earners, employers are not required to contribute to superannuation for employees who earn less than $450 a month.
Australia’s Maximum Super Contribution Base
And when it comes to high-income earners, the MSCB, which is the upper limit of income on which super contributions are required, comes into play. For the 2016/17 financial year, the MCSB is $51,620 per quarter.
That means that if an employee earns $51,620 per quarter (which works out to be $17,206.66 a month), their employer is required to contribute $4,903.90 to the employee’s super fund per quarter.
However, if that employee gets a pay rise and suddenly now earns $55,000 per quarter, their employer’s contribution to their super still only needs to be $4903.90 per quarter. That’s because with the MSCB at $51,620, 9.5% of $51,620, or $4903.90, is the maximum required contribution by the employer per quarter.
Of course, employers can continue to contribute to super beyond that MCSB – they just aren’t required to by law.
The MCSB is indexed in line with AWOTE (Australian Weekly Ordinary Time Earnings) each financial year, and the new rate is generally available in February each year. To view a table of current and past MCSB, click here.
Learn more about your requirements as an employer, along with other tips and advice for managing your workforce, on the Ento blog today.