Superannuation can almost be described as free money. Government supports it with tax benefits and obliges employers to pay their contribution. In 2014 the minimal contribution was set to 9.5% of employee’s gross salary and until 2025 this figure will gradually increase to 12%. So, if your gross salary is $8,000, your employer will need to contribute another $760 to your superannuation fund. Employer contributions represent the base of your retirement savings, but you can also increase the size of your superannuation fund, by implementing some these smart strategies.
Apply for government co-contributions
This government incentive aims to help eligible working people to boost their retirement savings. Only the low- and the middle-income employees who regularly pay their super contribution can apply for this grant. If the government finds that you’re eligible, they will make co-contributions to your super account. Their payments depend on your income and on the contributions you’ve made during the last fiscal year. A lower annual income and higher contributions increase your chances to get the maximum sum of $500.
Ask your employer to make more contributions through salary sacrifice arrangement
Salary sacrifice arrangements are mainly used for paying various employee benefits, such as: cars, health insurance and business phone bills. It’s basically a salary deduction that’s been made before income taxes are paid. This concept can also be used for making additional contributions to your superannuation plan. Salary sacrifice is a perfect arrangement for employers who want to give contributions that are higher than the obligatory 9.5%.
These types of super contributions are tax deductible so employers often use them for paying regular employee benefits. The contribution is paid with pre-tax dollars, but it is taxed at 15% at the fund, which is much lower than other personal income tax rates. Additional employer contributions are also exempt from Fringe Benefit Tax (FBT).
Since this type of salary sacrifice is usually just a part of your whole salary packaging plan, you should hire someone offering professional accounting services for individuals to help you to negotiate and structure the benefits package you receive from your employer.
Personal contributions to yours or your spouse’s fund
You and your family members can contribute to superannuation accounts with your after-tax income funds. Since the taxes on investment income can be as high as 45%, you’ll definitely benefit from a lower 15% superannuation tax rates. You can also make after-tax contributions to your spouse’s fund. In this case, you’re eligible for paying an 18% tax offset for all contributions that are lower than $3,000.
Consolidate your superannuation accounts and minimize your fees
If you can’t settle at one job, or you work part time gigs, you might have several superannuation accounts. This results in much higher administration and account management fees. By combining these accounts you will decrease your fees and simplify your superannuation for easier tracking.
Accounts with less $200 can be closed after you terminate your employment contract. Of course, if you withdraw your money or you transfer it to the new superannuation account that’s been offered by your current employer, you’ll need to pay taxes and some additional administrative fees. If you have more than $1,000 on the account you’re planning to close, you might face some additional expenses, so in this case you should definitely contact a financial advisor.
Superannuation is one of the best retirement plans in the whole world. We hope that Australian government will continue to raise the obligatory minimum rate and to give co-contributions in the future, because that will help thousands of low-income employees and their families to enjoy their retirement.