Did you know that building wealth through your superannuation is one of the most effective ways to save for your retirement?
Contributing extra to your super can make a substantial difference and will help you enjoy the retirement you want later. A minimal contribution, such as 1% of your salary either before or after tax, can make a big difference over the long term. By making voluntary contributions (after tax) you may be eligible for the super co-contribution scheme. If done through salary sacrifice (before tax) it could provide potential tax advantages.
If you haven’t read the Plan ahead section, take a look at it now. It provides more information about how much you may need in retirement. Knowing how much you need to save may help your planning.
This page can help you take action before your retirement:
Making contributions to build your superannuation assets may give you the flexibility to retire early.
Combine all your super accounts into one and save.
You may be able to split super contributions with your spouse.
Ease into retirement whilst taking advantage of some of the tax savings.
Contributing to your super
Kick-starting your super early is a great way to put you ahead. You can do this by making your own contributions in two ways:
- Salary sacrifice contributions to super are generally taxed at a lower rate than your marginal tax rate.
- Personal contributions do not attract contribution taxes, and earnings are taxed at a maximum rate of 15%.
Also, your employer is required to make Superannuation Guarantee (SG) contributions until you retire.
Salary sacrifice
When you salary sacrifice into super, you divert part of your before-tax salary into your super account.
This is set up as an agreement between you and your employer, so that instead of receiving the agreed amount as salary after tax is deducted, it is contributed directly to your super. This reduces your taxable income and, at the same time, helps boost your superannuation.
Salary sacrifice contributions to super are generally taxed at a lower rate than your marginal tax rate.
Making these contributions works effectively if you:
- are eligible to contribute,
- want to give your retirement savings a boost,
- have a marginal tax rate above 15%,
- can salary sacrifice income without it having a huge impact on your lifestyle, and
- have an employer willing to salary sacrifice your income
The same rules apply for self-employed people who are eligible to claim tax deductions for super contributions.
Be aware of contribution caps
From 1 July 2016, the concessional contribution cap for Australians under 50 is $30,000 per year, and $35,000 per year for those aged 50 or older. For employees, this includes employer contributions (SG contributions are generally 9.5% of your salary) made on your behalf and contributions made via salary sacrifice. The same limits apply for self-employed members.
Anyone exceeding the cap will be penalised by the Australian Taxation Office (ATO) at the top marginal tax rate, which is 47%. However, there may be scope to have the excess refunded to you and tax will be deducted at your marginal tax rate.
How to get started
You need to check that your employer allows salary sacrifice arrangements. If they do, then you can consider the following:
- How much do you want to contribute to your super from your salary? You can choose a percentage of your salary or a fixed dollar amount.
- If you are eligible for a work bonus, you may have the opportunity to salary sacrifice that too.
Personal contributions
An after tax, or personal, contribution is money that you pay into your super account after income tax has been deducted and no tax deduction has been claimed.
These contributions do not attract the contribution tax of 15%, they are recorded in your super account as 'tax free' contributions. When these tax free contributions are withdrawn, no tax is payable on the contributions themselves (though tax may be payable on any earnings).
These contributions, together with your assessable income as set out in your income tax return, are used to determine if you are eligible for the superannuation co-contribution.
The co-contribution scheme, as of 1 July 2013, is a government payment of up to $500 into the superannuation accounts of members who have made personal contributions to their super and earn less than $36,021 per year. If you earn up to $51,021, you may still be entitled to co-contributions, but at reduced rates*.
|
Annual income |
Maximum co-contribution |
|---|---|
|
$36,021 or less |
$500 |
|
$42,021 |
$300 |
|
$45,022 |
$200 |
|
$51,021 or more |
$0 |
* As at 1 July 2013, these proposed changes are not law as they have not been passed by parliament or received royal assent.
To work out if you are eligible for the Government’s super co-contribution scheme, use our simple calculator.
Superannuation Guarantee contributions
Another way to top up your super is by considering pushing your retirement out by a few years. The benefits of this option are:
- Your employer is still required to make Superannuation Guarantee (SG) mandatory contributions.
- The benefits of compound interest mean your super investment will have more time to grow.
- You may be eligible for the co-contribution scheme.
Want to top up your super?
Please contact our Service Centre on 1300 963 720 for information on making payments into your superannuation account. Everybody is different and may have different needs. A MyLife MyAdvice financial planner can help you work through your individual needs and work out a strategy that suits you.
Grouping your super
If you’ve had more than one job, it’s likely you have more than one super account.
Grouping your super accounts together could make a real difference to your final retirement amount as you will only be paying one set of account keeping fees. With only one set of paperwork, it is easier to manage your super and puts you in control.
Before you decide to group your super accounts, you should consider the following:
- ask your other super fund(s) if you will be charged any fees or termination penalties for transferring your super; and
- if you have insurance cover, find out how grouping your super will affect you. You may be able to transfer your insurance cover.
Super splitting
Some superannuation members can split contributions made on their behalf with their spouse under certain conditions, giving them a higher contribution cap leading up to retirement.
Want to split your super contributions? Please contact our Service Centre on 1300 963 720 for assistance and more information.
Transition to retirement
If you’ve reached your Preservation Age (refer to our Plan ahead page for more details), a transition to retirement (TTR) strategy could help you:
- ease into retirement by reducing your working hours and use some of your super to supplement your income - less work, same pay!
- continue to work the same hours but direct more salary into super via salary sacrifice while drawing a tax effective super pension – same work, same pay, more super!
If you want to cut back on your hours of work before fully retiring, a TTR strategy may help you to manage that without losing the take-home pay you’re used to. It enables you to withdraw some of your super through our Pre-Retirement Pension, an account based pension.
Read more information about the Pre-Retirement Pension offered by MyLife MyPension. You can also download a factsheet about this.
This is a popular strategy for members who want to reduce their working hours but maintain their income – there is no requirement to retire permanently – whilst taking advantage of some of the tax savings available using superannuation pensions.
There may be further tax savings made when you combine a Pre-retirement Pension with salary sacrifice (see above). You use the money from your super to open an account-based pension. You can then make additional salary sacrifice contributions into super, which are taxed at only 15%, while the pension pays you a regular income to supplement your work income.
If you are over the age of 60, your pension income is tax-free. If you are between the ages of 55 and 59, you receive tax concessions. As a result, the TTR strategy can, in some cases, significantly boost your super.
Case study:
Jim uses a TTR strategy to increase super savings.
Jim is aged 53 and has decided that he wants to maximise the value of his superannuation account to be ready for retirement when he is 67. Jim currently earns a gross salary of $50,000 and has recently inquired about the benefits of salary sacrifice. He doesn’t have spare income to invest in super so he decides to move his money to a MyLife MyPension Pre-Retirement Pension when he turns 55 or 60.
|
Current situation |
Using a TTR strategy from age 55 |
Using a TTR strategy from age 60 |
|
|---|---|---|---|
|
Gross salary |
$50,000 |
$50,000 |
$50,000 |
|
Salary sacrifice |
Nil |
($17,261) |
($20,050) |
|
MyLife MyPension Pre-Retirement Pension |
Nil |
$14,000 |
$14,000 |
|
PAYG income tax (plus Medicare levy) applicable |
($7,797) |
($4,540) |
($1,737) |
|
Net take home pay |
$42,203 |
$42,199 |
$42,213 |
|
Total super contribution (includes 9% employer plus salary sacrifice, less contributions tax and pension payment) |
$3,931 |
$4,603 |
$6,974 |
|
ADDITIONAL SUPER SAVINGS PER YEAR |
NIL |
$688 |
$3,053 |
|
|
|||
|
Assumptions: Based on 2012/13 marginal tax rates, plus Medicare Levy. Assumes a super balance of at least $140,000. |
|||
|
Jim has been able to maintain his net take home pay whilst boosting his superannuation savings by $688 in just one year. |
|||
How does a Transition to Retirement strategy work?
Putting a Transition to Retirement strategy in place could really put you ahead.
When you reach preservation age even if you are still working, you can access your super as a regular income through a transition to retirement pension such as the MyLife MyPension Pre-Retirement Pension. This pension income generally attracts less tax (and is tax free after age 60) than income through work, so can be used to supplement or even replace your income.
A TTR strategy can work best if combined with salary sacrifice. This is because your salary sacrifice contributions are taxed at a lesser rate when they go into your super so you can direct your work income into your super and replace it with income from a transition to retirement pension.
Supplement your income
A TTR strategy can help you reduce your working hours. The reduced income from your work is supplemented by regular pension payments from your MyLife MyPension Pre- Retirement Pension.
Need more help?
Call our Service Centre on 1300 963 720, or refer to details on our Contact us page.
You can also book an appointment with a MyLife MyAdvice financial planner through our Service Centre over the phone or online by following this link.
The following information can help you build your super and plan for the retirement you want: