In 1983, government, employers and trade unions agreed to the creation of a nationwide superannuation scheme. Since 1992 Australian Employers have been required by law to make Employer Guaranteed Superannuation Contributions into their employees’ superannuation funds. Prior to July 2014, this contribution was required to be 9% of an employee’s annual wage; however this figure now stands at 9.5%, with a plan in place to increase that figure to 12% by 2025. Unfortunately, for the vast majority of Australians that amount will be insufficient to provide for a comfortable retirement, so what are the options for boosting supersizing your super on top of your employer’s contributions?
Salary sacrifice provides you with the opportunity to have your employer make additional pre-tax contributions on your behalf. You can nominate how much you would like to salary sacrifice (make sure you check with your employer whether or not they allow salary sacrifice, it isn’t compulsory that they do so), up to the pre-tax (concessional) contribution limit. For most Australian’s under the age of 49, this amount is $30,000 per annum. Keep in mind that this figure also includes your employer’s contributions, so take care that you stay under the threshold as penalties may apply. Salary sacrifice is ideal for those with a higher income, as any amount you put into your super via salary sacrifice is taxed at the superannuation rate of 15% rather than whichever tax bracket you are in, which could be as high as 49%. The government is also looking at other options for deductible contributions, so we will keep you posted of any updates as they occur.
In addition to pre-tax contributions, you can also make after-tax (non-concessional) contributions. Making contributions this way doesn’t have the tax benefits of salary sacrifice, but it does allow you to make large contributions in a short period in order to boost your super more quickly. The limit on non-concessional contributions is $180,000 per annum, with the option to make three years’ worth of payments ($540,000) in one year, as long as you don’t make additional contributions in the subsequent two years, and you are under 65 years of age. This boost will provide a larger principal amount that your super fund will then earn returns on.
Depending on your financial circumstances, you may be eligible for government contributions into your superannuation in the form of either the super co-contribution or the low-income super contribution (LISC) or both. You don’t need to apply for either of these contributions. If you’re eligible, have lodged your tax return and your fund has your tax file number (TFN), the ATO will pay the relevant amount into your fund account automatically.
By Jennifer Lowe