The following topics can help you to maximise these concessions and allow you – and even your spouse – to receive more super:
Super versus non superannuation investments
For many people, superannuation can be more tax effective than an equivalent non-super investment. This is because the Government provides tax concessions to encourage people to save for their retirement through superannuation.
For example, investment earnings in superannuation are generally taxed at much lower rate than earnings from a non-superannuation investment.
This chart compares the long-term return provided by AustralianSuper’s Balanced Investment Option to the return provided over the same period by a typical bank account. The graph shows the value over time of a $10,000 amount invested at 1 July 1987 in the Balanced option compared to $10,000 in a bank account over the same period.
How superannuation grows
Your superannuation will increase over your working life through contributions and investment earnings.
Even better, the more you have in your account from contributions and accumulated investment earnings, the more it will grow.
That's because of compounding, which is where you earn interest on the interest that has already been added to your account.
Over time, the effects of compounding can make a big difference. In fact, Albert Einstein described compound interest as the most powerful force in the Universe!
An example of compounding in action
Maria, age 21 has $100 invested. Let's assume that in each of the next three years she receives a return of 5% after fees and tax.
Year 1 – invests $100, receives a return of $5
Year 2 – balance $100 + $5 = $105, receives a return of $5.25
Year 3 – balance $105 + $5.25 = $110.25, receives a return of $5.51.
As you can see, each year Maria has a bigger balance to invest so she earns a larger return. As Maria keeps reinvesting, her account balance will grow by larger amounts over time.
Superannuation works in a similar way.
Your superannuation fund invests your contributions and investment earnings every year. As these increase, so does your account balance.
Starting early
Most of us will need to contribute extra amounts to superannuation, on top of what our employer pays, to ensure we have enough savings for a comfortable retirement.
Starting to make these extra contributions early is a good idea, as this gives your superannuation more time to grow.
You are limited to the amount of before and after-tax contributions you can make to superannuation each year. Contributions above the limits are taxed at 46.5%.
Consider the chart below, which shows how much your account balance may increase with personal contributions on top of the Superannuation Guarantee contributions from your employer.
Just $1,000 per year could boost your retirement income by more than $121,800. Imagine what a difference that will make to your retirement benefit. You can put a portion of your pay aside each week:
- Before-tax, through a salary sacrifice arrangement with your employer
- After-tax, out of your take-home pay.
Even if you can't commit to a regular contribution right now, you can make one-off contributions when you have the spare cash – even small amounts can make a difference over time.
Your first step is to prepare a budget. That way you can work out how much extra you can afford to put into your super.
Assumptions: opening balance $10,000 at age 30, annual salary $35,000, $1,000 yearly after-tax contribution, $1,000 annual Government co-contribution, 9% employer contributions, 7.5% balanced option investment return, long-term inflation rate of 2.5%, $1.50 weekly administration fee, 0.72% investment management fee, retirement age of 65. Three units of Death and TPD insurance (default) held. Final balances expressed in today’s dollars, calculated over a 35 year investment period.
Source: AustralianSuper Super calculator, 1 July 2009.
Voluntary Contributions
Research* shows that compulsory Superannuation Guarantee (SG) contributions alone may not provide enough for the average person to meet their financial obligations in retirement.
Therefore, making extra contributions to your super can help provide the security you need to enjoy life once you stop working.
There are two main ways of making extra contributions to your super:
- Voluntary contributions made by you from your after-tax salary
- Salary sacrifice contributions made by you from your before-tax salary by agreement with your employer.
You should consider what mix of employer contributions, salary sacrifice and personal contributions is best for you. The AustralianSuper Contributions Calculator will help you compare the benefits of each.
* ASFA Retirement Standards, December 2008.
How it works
Voluntary contributions can be paid into your super account by your employer through a payroll deduction or by you via direct debit, BPAY®, POSTBillpay® or cheque.
If you earn less than $61,920 a year and make voluntary contributions to your super, you may receive up to $1,000 tax-free from the Federal Government's co-contribution scheme which is paid directly into your super account.
As these contributions have already been taxed as earnings (at the marginal tax rate that applies to you) they are not taxed when deposited into your superannuation account or if you withdraw your superannuation benefit as cash when you retire. An annual limit of $150,000 p.a. (or $450,000 averaged over 3 years) applies to all voluntary (after tax) contributions made to super.
Eligibility criteria
For members aged 65 to 74 years, an annual contributions limit of $150,000 will apply, provided you meet the Work Test. This Test requires that you work 40 hours in a 30-day consecutive period. Members aged 75 and above cannot contribute to superannuation. Contributions that exceed these limits will be taxed at a rate of 46.5%.
Our online contributions calculator will show you a personal example of how voluntary contributions could boost your super.
Download and complete the Voluntary contributions form.
Spouse contributions
AustralianSuper will accept spouse contributions.
You can make contributions on behalf of your spouse (married or de facto) if your spouse is under age 70. Conditions apply between ages 65 and 69.
If your spouse is already an AustralianSuper member, you can make spouse contributions by completing a Spouse contribution advice form.
However, if they are not a member, they can join our Personal Plan.
Please note: You may be able to claim a rebate from the Government for spouse contributions in your tax return. For more information contact the Australian Taxation Office.
