When it comes to the Australian pension, there’s good news, and there’s bad news.
The good news is that it exists. The bad news is that it falls below the recommended income for retirement. So, if you envisage very comfortable and generous golden years, a pension alone won’t provide the pudding.
That’s where superannuation comes in. Its role is to help Australians achieve financial security in retirement and to live their later years as comfortably and dignified as possible. So it stands to reason that the more oxygen you give now to your superannuation fund, the more you should have when you officially clock off work for good.
But what’s the best way to achieve this? In this article, we will explore the five main funding streams for your superannuation planning and seven easy steps to keep growing your super.
Difference between concessional and non-concessional super contributions
Before we get going, it’s important to understand these terms and the distinction between them.
What is a concessional super contribution?
A concessional super contribution is money placed into your super fund before you pay tax on it. These contributions are typically made by an employer, through salary sacrificing or your own personal payments, all of which we explore in detail further down.
Once in your fund, they are taxed at 15% (which the fund itself can pay). The annual contributions cap is $27,500. However, this includes employer contributions and salary sacrifice. You may be subject to additional taxes if you go over this cap.
What is a non-concessional super contribution?
A non-concessional super contribution is money placed into your fund after you have paid tax on it. This might include personal sayings, employer payments after tax, spouse payments, life insurance premiums, transfers from foreign super funds or inheritances. These contributions are not subject to the concessional contribution cap.
There are quite detailed exclusions, such as personal injury payments, which our team would be happy to go over with you. The non-concessional super contribution cap is $110,000 and cannot be claimed.
Now we’re clear on these two types of payments, let’s dive into some more detail.
How does superannuation grow - five key funding streams
There are five ways money can go into your super account.
Provided you are eligible for super guarantee (SG) contributions (and most working Australians are), your employer must pay the minimum amount into your super fund (which you have the right to select) every three months.
Their payments go towards your before-tax contributions cap, which is currently $27,500 and is the maximum amount you can contribute to your super without incurring extra tax.
You and your employer may negotiate salary packaging, whereby a portion of your income is paid directly into your super account. This is also a legal and effective tax reduction strategy, as it lowers your taxable income, and the concessional contributions are taxed at 15% (so less than most marginal tax rates).
Your employer must still make their SG contributions—salary sacrifices cannot subsidise their obligations. Remember, although this form of contribution is not subject to PAYG tax, it must be included in your tax return.
You can make voluntary contributions to your superannuation fund. You might set this up as a regular occurrence (in which case, we recommend you first consider salary sacrificing due to the tax benefits), or you might make occasional lump sum payments. Just remember, if you exceed the cap of $27,500, you could be liable to additional taxes.
If you are a low or middle-income earner, you can make personal after-tax super contributions to which the government can co-contribute up to $500 per year. This is referred to as a low-income super tax offset (LISTO) payment, and the figure ultimately depends on your exact income and the contribution amount you make.
There is no need to apply for this funding - it is automatically calculated when you lodge a tax return and then paid directly into your super account.
Your spouse or de facto can make a partner super contribution of up to $3,000 per year. This not only contributes to your super fund but may also make them eligible for a tax offset, so it’s a win-win!
Now that we know how money can enter your super account, let’s examine how to grow your super.
7 Ways To Grow Superannuation
As boutique Melbourne financial planners, ActOn Wealth specialises in superannuation growth strategies. We see this as a valuable, effective way to grow wealth; and we want to maximise your potential to do exactly that. We can assist with several of the below ideas, so don’t hesitate to contact us for a no-obligation, free initial consultation.
Call our financial advisors in Melbourne and book a free appointment - 1300 022 866 |
The above streams are fresh in mind, but let’s revisit them quickly, as they’re not just contribution options; they’re ways your super can grow.
1. Ensure your employer is making correct contributions
Mistakes happen. Your employer SG contributions must be 11% of your pre-tax salary. Check the figures to ensure you’re getting the right amount.
2. Salary sacrifice
If you can afford to, salary sacrificing is a great way to offset your tax and grow your super at the same time. It’s another win-win!
3. See if you're eligible for government super co-contributions
We explained earlier that this process is automatically calculated when you lodge your tax return, but it’s worth investigating all the same.
If you know you’re definitely eligible (our financial planners can determine this), you can watch out for that super contribution into your account and make sure it lands.
4. Consider a partner super contribution
If your partner is looking for tax-minimising strategies and can afford $3,000 a year, they can take this practical superannuation growth step for you.
5. Look for lost superannuation
Australians are estimated to have some $ 16 billion in lost and unclaimed super. How much of that belongs to you? Looking for lost super can be worth the effort; you can go about it in three ways.
As part of ActOn Wealth’s financial planning service
Online through MyGov - you’ll need a MyGov account linked to the ATO
Calling the automated super search number - 13 28 65.
6. Consolidate superannuation
You’ve probably held several jobs over the years, which could mean you’ve contributed to disparate super funds. Consolidating superannuation can minimise overall fund management fees, maximise returns and simplify management. However, this does require time and effort to chase and wade through the red tape.
As part of our financial planning services, we can review the paperwork, identify all your funds and take the necessary steps to amalgamate them on your behalf.
7. Conduct a superannuation review
We’re finishing with a big one.
How confident are you that your current super fund is working as hard as possible for you?
We’ll hazard a guess and say a lot more can be done. It’s very easy to look at super as a ‘set-and-forget’ strategy. However, it can be one of your most significant and valuable wealth-growing strategies. We think that merits a regular health check.
Contact us about how to grow your superannuation
Your retirement is too important to let your super sort itself out. Give it the attention and oxygen it deserves, and speak to our financial planners today about making the most of your super fund account.