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Superannuation Contributions
Your employer superannuation contributions may not be enough and you may need to look at making additional super contributions. The good news is that if you start early, even small personal superannuation contributions will make a significant difference to your retirement purse.
But my employer pays contributions into my superannuation account. Isn’t that enough?
Your employer pays 9% of your salary into your superannuation account, but this is probably not going to be enough.
The Association of Superannuation Funds of Australia suggests 12%–15% of salary over 30 years as a minimum savings target (however this percentage will need to be increased if you have any time out of the workforce, such as maternity leave). To achieve these levels, you will need to make additional contributions to your superannuation account.
When should you start to put extra contributions into your superannuation?
The simple answer is – the sooner the better. This is because the earlier you start the more you can take advantage of the benefits of compound interest (earning interest on your interest). Even just a few extra dollars put into your account each week can make a huge difference to your end benefit.
What is the difference between pre-tax and post-tax superannuation contributions?
Personal contributions to your superannuation can be made:
- from your pre-tax salary (this is called salary sacrifice)
- from your post-tax salary
Different taxation rules apply to each method of contribution and depending on your financial situation one may be better for you.
Salary sacrifice to superannuation
Salary sacrifice is when you arrange with your employer to contribute part of your pre-tax salary toward your super. This has advantages – it reduces your taxable income (meaning you will pay less income tax) whilst boosting your retirement savings. In addition, superannuation salary sacrifice contributions are taxed at just 15%, which can be great news for higher income earners (who may have personal income tax rates of up to 46.5% including the Medicare Levy).
Post-tax superannuation contributions
Voluntary superannuation contributions that you make from your post‑tax earnings are not subject to any additional tax when they enter or leave the fund (because you have already paid tax on these amounts). In addition, if you are a low‑income earner, post-tax contributions may also attract a superannuation co‑contribution from the Government.
A reward for your superannuation contributions from the Government
If you earn less than $61,920 (2009/10) a year and make post-tax personal contributions to your super, then the Government will help boost your account with a superannuation co-contribution of up to $1,000 per year.
For every dollar of personal post-tax contributions you make to your superannuation account, the Government will match it up to $1,000 per year if you earn $31,920 (2009/10) per year or less. The maximum co-contribution reduces by 3.33 cents per dollar of income over $31,920 p.a. and phases out altogether when your income reaches $61,920 p.a.
Who can make personal superannuation contributions?
Government regulations specify who can make personal superannuation contributions into their own super account:
Aged less than 65 – there are no restrictions; you can make personal contributions regardless of work status.
Aged between 65 and 74 – personal contributions can be made if you have worked at least 40 hours over 30 consecutive days during the financial year in which the contributions are made.
Aged 75 and over – personal contributions are not allowed.
How do you make a personal superannuation contribution?
Each superannuation fund will have differing methods for you to make a personal contribution. The following three points are examples of what options that may be available with your superannuation fund.
- payroll deduction – speak to your employer and ask to make a post-tax contribution from your pay
- BPAY® – pay by phone or internet banking
- cheque – send a cheque with your name and member number written on the back through the mail.
If you want to maximize your superannuation contributions by either pre or post tax superannuation contributions contact an xLife superannuation adviser today for superannuation advice!
Get your first Superannuation Consultation FREE!
Talk to a Specialist Superannuation Adviser on 1300 135 205 about growing your superannuation today!
December 2009
