COMPULSORY SUPER: HOW CAN YOU SPEED UP YOUR RETIREMENT SAVINGS?
The compulsory superannuation guarantee rate – currently 9.5% – is set to increase over the next few years. But if you’re an employee, will relying on compulsory employer contributions be enough to meet your retirement goals? There are many steps that workers can take to boost their retirement savings. The key is to take an active interest in your superannuation and understand the contributions measures available to you.
“Superannuation guarantee” (SG) contributions are the minimum superannuation contributions that employers must make for their employees. The SG rate is currently 9.5%, which means employers must make contributions equal to 9.5% of the employee’s salary or wages.
SG contributions are capped for high-income earners. Effectively, an employer is only required to make SG contributions to the extent the employee earns up to $216,120 per annum (indexed); earnings above this threshold don’t attract SG contributions.
In line with long-term government policy to help Australians build retirement savings, the SG rate is scheduled to gradually rise to 12% over several years, as shown in the following table:
But while this timetable is currently set down in legislation, it’s possible these rate increases could take a different path in coming years – either to slow down, speed up or stall indefinitely. Ongoing differences between the two major political parties mean there is significant disagreement about the optimal SG rate, with the Coalition tending to slow SG increases down (having twice passed laws to delay the previous Labor government’s planned increases) and Labor pushing towards a higher rate (with an official long-term goal of increasing the rate not only to 12% but eventually to 15%). There is also a diverse range of opinions among policy researchers and interest groups, adding to the complexity of this issue.
What should Australian workers make of this? Politics around the SG rate may be beyond our control, but individually, workers can help themselves by looking for additional ways to boost their savings, regardless of their income status. As each person has different financial circumstances, retirement plans, lifestyle needs and capacity to make extra contributions, it makes sense to seek professional advice to identify ways to build your savings that are appropriate for your situation.
Some ways that workers can boost their retirement savings might include:
Super co-contributions: Workers aged under 71 years with an income of $52,697 or less may be eligible for a government “co-contribution” when they make their own extra after-tax contributions to super.
If you earn $37,697 or less, the government will match your own contributions by 50% (up to a maximum government contribution of $500 for your $1,000 personal contribution).The matching rate then tapers down for incomes up to $52,697.
Salary-sacrificed contributions: If you can handle a reduction in your take-home pay, arranging for your employer to pay part of your salary as an extra superannuation contribution can both boost your superannuation and save you tax; you will not pay personal income tax on the amount as it will instead be taxed at 15% when received by your superannuation fund. Just remember that both your SG contributions and salary-sacrificed amounts count towards your $25,000 annual concessional contributions (CC) cap, and exceeding this cap can result in penalty taxes.
Deductible personal contributions: If your employer does not offer a salary-sacrifice program, you can make extra contributions from your own after-tax income and then deduct these amounts in your tax return, provided you complete some extra paperwork. These amounts also count towards your CC cap, so take care.
Take control of your super
Talk to us today about building your retirement savings. As well as the tips above, we can help you explore the full range of measures available, including strategies to boost your spouse’s super (through “splitting” and other arrangements), “downsizer” contributions (relating to proceeds from the sale of your home) and more.