There are mixed feelings in the superannuation sector about the Protecting Your Super (PYS) and the Putting Members’ Interests First (PMIF) measures, particularly in regard to the intended and unintended impacts on insurance cover and premiums.

However, one positive aspect of the changes is that they eliminate just about all the objections to removing the $450 a month threshold for the payment of the Superannuation Guarantee (SG).

It may not come as a shock, but we now have evidence that the Australian Treasury has in the past put quite a bit of effort into trying to find reasons for not removing the threshold. A recent freedom of information (FOI ) request led to the publishing of a Treasury Question Time briefing note on the Treasury website about this.

At least some of the Treasury analysis is sound in that they found my numbers about the number of women and men affected and the amount of superannuation people missed out on either broadly consistent with their numbers or not unreasonable. Given that the Treasury has access to a lot more ATO data than I do, this was quite encouraging.

Who is impacted by the $450 threshold

Treasury estimated in 2017 that 240,000 women (around 3.5 per cent of women in the paid labour force) and 160,000 men were affected by the $450 threshold. Foregone superannuation in the order of $125 million was seen as not unreasonable.

More encouragingly, the Treasury estimates that around 600,000 employees earning less than $450 a month from a single employer received the benefit of superannuation contributions despite their employer not being under any legal obligation to make such contributions. Apart from the fairness of doing so, it can be costly to undertake a calculation each month in order to avoid paying just a few dollars in superannuation contributions.

The $450 threshold primarily affects younger employees, with around 40 per cent of those aged under 25 and two-thirds aged under 35. However, there are at least some employees aged 65 and over affected. Casual work is not just the preserve of the young.

Around 40 per cent of individuals who are under the threshold have another primary job earning above $450 a month. On the other hand, nearly half of the employees under the threshold and not receiving SG have a superannuation balance under $5,000. Not getting any SG certainly helps keep your super balance low.

The Treasury analysis indicates the impact of removing the $450 a month threshold would have a negligible impact on the nation’s wages bill. The cost to employers in total might be as little as $100 million year compared to an overall wages bill of around $800 billion. Given that superannuation contributions are now made electronically, the administration costs for employers associated with making contributions are likely to be negligible.

However, some employers might be affected more than others. That said, if your business model depends on shortchanging some employees in regard to their superannuation then it is not really a very good business to start with.

PYS and PMIF implications for SG

The Treasury question time briefing material is laced with cameos of individuals who have most or all of their superannuation contributions eroded by administration fees and insurance premiums. However, the PYS and PMIF changes basically eliminate such outcomes.

The PYS measures amongst other things cap fees, including investment fees, at 3 per cent of the account balance at the end of the financial year for accounts under $6,000. This means that fees charged will be well less than investment earnings credited to such accounts with no erosion of the contributions. Also, the PMIF changes generally put insurance on an opt-in basis for all accounts under $6,000 even if they are receiving contributions and going forward makes insurance cover opt-in for everyone aged under 25. These changes take effect from 1 April 2020 in terms of insurance cover ceasing if affected members do not opt-in.

Once an account is over $6,000 generally investment earnings are sufficient to cover administration fees and default insurance premiums.

There may have been a rationale for the $450 a month threshold when it was first introduced. Starting off the SG rate was lower, a majority of the adult population did not have an existing superannuation accounts, and fees and insurance premiums had the potential to erode contributions made for an employee.

However, now the situation is quite different. The SG has reached 9.5 per cent and is legislated to increase to 12 per cent. Fees are capped on low balance accounts and insurance is largely on an opt-in basis for superannuation accounts held by people earning less than $450 a month.

The time has come for removal of the $450 a month threshold for the SG with the Treasury analysis in effect confirming that such a change is affordable for employers and beneficial for the employees affected.