The new financial year will be a big one for superannuation, with all working Australians due for a super rise and personal contribution limits to be increased.
Firstly, from July 1 the superannuation guarantee paid by employers will rise 0.5 per centage points to 10 per cent. That means about $420 a year extra in super for someone on the average full-time pay of $84,000.
And that money will flow to most Australian workers despite reports to the contrary which claimed people on private contracts would be likely to see their wages cut by the level of the super rise.
A report by super consultancy Mercer found found that “85 per cent of employers surveyed who pay the minimum SG rate of 9.5 per cent will pay the increase in addition to salary increases.”
Two-thirds of employees are on enterprise bargaining agreements or award rates, and increases are likely built in. Many of those on individual contracts are higher income earners who Mercer found were unlikely to have their salary affected by the SG rise.
Wages will grow
Consulting firm ACIL Allen has found that over the medium to long-term the super guarantee increases will underpin strong wage growth due to the increased investment stimulating economic growth.
“These legislated increases, locked in law for years, are modest and affordable – only a few dollars a week – but while they may be small they will make a huge difference to workers’ retirement savings,” said Bernie Dean, CEO of Industry Super Australia.
Just how much of a benefit scheduled super rises will be to those in the workforce now has been caclulated by Flinders Private Wealth. The move to 12 per cent scheduled by 2025 will boost the retirement savings of a 50-year-old on $120,000 today by $78,646 and a 30-year-old on $80,000 by $272,572 by age 67.
Remember that younger people on lower pay will have longer times saving in the super system, so even small SG increases develop into large benefits.
“If the SG were to be increased to 15 per cent, as its architect Paul Keating wanted, it would have delivered 70 per cent of pre-retirment income to those retiring,” said Michael Abrahamsson, principal with Flinders Private Wealth.
The arrival of some extra super money means anyone making salary sacrifice contributions should review their situation, Mr Abrahamsson said.
“Not only is the SG going up but concessional super contribution caps are rising from a maximum of $25,000 to $27,500 a year. That means it is important to review your salary sacrifice arrangements to see if you can afford to increase the amount you are contributing,” he said.
So there is more headroom to save a bit more through salary sacrifice if you are in a position to do so. Non-concessional superannuation caps will also increase from July to $110,000, or $330,000 every three years.
At this time of the year it also could pay to think about catch-up contributions to super, says Thabojan Rasiah, principal of Rasiah Private. These allow people who have not used all their concessional contribution cap of $25,000 back to 2018-19 to make extra contributions up to the total value of unused caps.
That would allow those in a position to do so to contribute up to $75,000 in a concessional, or tax-advantaged, contribution by June 30. “You want to make sure that you know what contributions you received since July 2018 in each of the financial years,” Mr Rasiah said.
“Importantly you need to know what contributions you have received in all super funds – that’s a trap people can fall into, not taking into account all the super funds they are members of,” Mr Rasiah said.
If, for example, a person contributed $20,000 to super in 2019-20, including SG, they could put in another $5000 this year as a concessional contribution. This measure could be useful for people who have, for example, sold a property or another asset and have cash available.
Get your dates right
It is also important to make sure you are not confused about the starting date for some recent super changes. The work test for making super contributions will be abolished for those aged between 66 and 74, which will allow people to continue to make super contributions after they retire.
“But that is not expected to commence until July 2022,” Mr Rasiah said. If you make the contributions in the year ahead by mistake you could be penalised and have to withdraw the extra contributions from your fund.
Another change that doesn’t commence until July 2022 is the extension of the downsizer contributions to super for those aged between 60 and 64. Currently you must have turned 65 to take advantage of this attractive measure.
Spending the house
It allows people downsizing their family home to make contributions of up to $300,000 per member of a couple to super without adding it to their non-concessional contribution cap levels. That means it won’t be counted in working out whether you can make further non-concessional caps.
So if you were planning to avail yourself of the measure and are under 65, wait a year. “Also remember that you have to make the downsizer contribution within 90 days of receiving the proceeds of the sale,” Mr Rasiah said.
The New Daily is owned by Industry Super Holdings