While Australia’s Superannuation Guarantee (SG) funds are similar to India’s in that the program is mandatory and employers must make minimum contributions to a fund of the employee’s choice, they differ in that they do not require employees to make minimum contributions. Employee contributions to an SG fund are voluntary. Australia introduced SG schemes in 1992, and by 1993, they were a part of the country’s three-pillar system:
- Compulsory Superannuation: Employer contributions to an employee’s SG
- Age Pension (Social Security): Flat allowance paid to eligible citizens and not based on earnings
- Private Savings: Employee contributions to their SG and home ownership equity
Initially, employers were required to make a 3% contribution to the employee’s SG account, but over the years, employer contributions have steadily increased. As of July 1, 2023, employer contributions increased to 11% on quarterly earnings of up to AUD $60,270 and will steadily increase to 12% by 2025. Employees are not required to contribute to the SG fund but can make a voluntary contribution within the concessional contribution cap, also known as the Social Security Ceiling. The annual concessional contribution cap is AUD $27,500. Non-concessional contributions come from employees’ post-tax income, are voluntary, and are capped at AUD $110,000 per year. Employer contributions to an SG fund are considered wages and must be included when reporting salaries for statutory Workers’ Compensation coverage. Unlike India and South Aftrica, SG plans are burdensome and quite costly for employers to administer.
Australia’s system is different from those of Asian countries due to their retirement systems being “open architecture.” This is a system where employees and employers have many funds to choose from, and the administrator is also the trustee and can offer both proprietary investment funds and funds available through a third-party investment firm.
Provident Fund Comparison Chart
Understand the Differences Between Provident Funds
To comply with laws and ensure that employees receive accurate contributions to their retirement funds, it’s crucial for employers to understand provident funds in countries where they are located.