Are there any super contribution limits?

Are there any super contribution limits?

If you’re considering making extra super contributions in order to boost your nest egg, it’s important to be mindful of any limitations and avoid being stung by hefty additional taxes.

It’s never too early to start planning for your retirement. In fact, the sooner you make positive changes to your superannuation, the greater chance you give yourself to retire comfortably.

While you may feel content with the knowledge that your employer is making compulsory contributions into your super fund account each quarter, even minor extra contributions can really add up over the years.

If you’re employed, earning at least $450 per month and are over the age of 18, you're eligible to receive super from your employer.

The minimum contribution amount that your employer is required to make, known as the super guarantee, is currently 9.5% of your gross salary. This is scheduled to progressively increase to 12% by July 2027.

In addition to your employer’s contribution, you may be entitled to make extra contributions yourself, in the form of one or both of the following:

  1. Pre-tax super contributions
  2. After-tax super contributions

Keep in mind, however, there are limits to how much you can contribute in both cases.

What are the super contribution limits?

Pre-tax super contributions

Pre-tax super contributions, also known as salary sacrifice, can be paid out of your pre-tax income by your employer, at your request.

These payments, along with your employer’s super guarantee, make up what is known as your concessional contributions.

Your concessional contributions have a limit of $25,000 in total per financial year, regardless of your age and super fund balance.

Concessional contributions are taxed at a rate of 15%, which in most cases will be lower than your marginal tax rate.

According to MoneySmart, making extra concessional contributions is generally tax effective if you earn more than $37,000 per annum.

If your concessional contributions total less than $25,000 in a financial year, you may have the opportunity to utilise the unused amount of the cap for up to five years, in the form of a carry-forward contribution.

For example, if your concessional contributions totalled $20,000 in 2018, you may be able to carry the remaining $5,000 forward so that your 2019 cap becomes $30,000. If you then only make pre-tax contributions totalling $25,000 in 2019, you can continue to carry that excess $5,000 forward for a total of up to five years.

Only those with a total super balance of less than $500,000 on 30 June of the financial year prior may be eligible.

After-tax super contributions

If you reach the concessional contribution cap, there’s also the option to make super contributions from your after-tax pay. These payments are known as non-concessional contributions, as you will have already paid tax on this money.

The amount of non-concessional contributions you can make each financial year is capped at $100,000, for those with super balances of less than $1.6 million. If your super balance is over $1.6 million, you are ineligible to make non-concessional contributions.

There may be carry-forward flexibility for non-concessional contributions as well, depending on your age and your super balance.

What happens if I have exceeded the super contribution caps?

If you fail to keep track of how much you have paid into your super account in the form of both concessional and non-concessional contributions each financial year, you run the risk of exceeding the limits.

And if you do find yourself in that position, you could face having the excess taxed by up to 94% in some cases.

The total amount of extra tax you may have to pay will typically depend on your age, which financial year your contributions relate to, and whether the contributions were concessional or non-concessional.

If the Australian Taxation Office (ATO) does find that you have exceeded the caps, you will be issued with a determination and offered two payment options for the tax owing:

  1. Use your savings
  2. Pay it with the funds from your super account

If you want to find out how much you have contributed to your super fund in order to prevent exceeding the limits, you can either contact your super fund directly or the ATO.

You can also view your remaining carry-forward cap balance using ATO online services via myGov.

Did you find this helpful? Why not share this article?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

Learn more about superannuation

What are reportable superannuation contributions?

For employees, there are two types of reportable superannuation contributions:

  • Reportable employer super contributions your employer makes for you
  • Personal deductible contributions you make for yourself

How do you claim superannuation?

There are three different ways you can claim your superannuation:

  • Lump sum
  • Account-based pension
  • Part lump sum and part account-based pension

Two rules apply if you choose to receive an account-based pension, or income stream:

  • You must receive payments at least once per year
  • You must withdraw a minimum amount per year
    • Age 55-64 = 4%
    • Age 65-74 = 5%
    • Age 75-79 = 6%
    • Age 80-84 = 7%
    • Age 85-89 = 9%
    • Age 90-94 = 11%
    • Age 95+ = 14%

If you want to work out how long your account-based pension might last, click here to access ASIC’s account-based pension calculator.

Is superannuation paid on unused annual leave?

If your employment is terminated, superannuation will not be paid on unused annual leave.

What are reportable employer superannuation contributions?

Reportable employer superannuation contributions are special contributions that an employer makes on top of the regular compulsory contributions. One example would be contributions made as part of a salary sacrifice arrangement.

What is the difference between accumulation and defined benefit funds?

A majority of Australians are in accumulation funds. These funds grow according to the amount of money invested and the return on that money.

A minority of Australians are in defined benefit funds – many of which are now closed to new members. These funds give payouts according to specific rules, such as how long the worker has been with their employer and their final salary before they retired.

How do you get superannuation?

You’re automatically entitled to superannuation if:

  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month

How do you find superannuation?

Lost superannuation refers to savings in an account that you’ve forgotten about. This can happen if you’ve opened several different accounts over the years while moving from job to job.

You can use your MyGov account to see details of all your superannuation accounts, including any you might have forgotten. Alternatively, you can fill in a ‘Searching for lost super’ form and send it to the Australian Taxation Office, which will then search on your behalf.

What happens to my superannuation when I change jobs?

You can keep your superannuation fund for as long as you like, so nothing happens when you change jobs. Please note that some superannuation funds have special features for people who work with certain employers, so these features may no longer be available if you change jobs.

How do I choose the right superannuation fund?

Different superannuation funds charge different fees, offer different insurances, offer different investment options and have different performance histories.

So you need to ask yourself these four questions when comparing superannuation funds:

  • How many fees would I have to pay and what would they cost?
  • What insurances are available and how much would they cost?
  • What investment options does it offer? How would they match my risk profile and financial needs?
  • How have these investment options performed historically?

How much extra superannuation can I add to my fund?

There is an annual limit of $25,000 for concessional contributions – that is, money paid by your employer and extra money you pay into your account through salary sacrificing. There is also a limit on non-concessional contributions. Australians aged between 65 and 74 have a limit of $100,000 per year. Australians aged under 65 have a limit of $300,000 every three years.

How can I withdraw my superannuation?

There are three different ways you can withdraw your superannuation:

  • Lump sum
  • Account-based pension
  • Part lump sum and part account-based pension

Two rules apply if you choose to receive an account-based pension (also known as an income stream):

  • You must receive payments at least once per year
  • You must withdraw a minimum amount per year
    • Age 55-64 = 4%
    • Age 65-74 = 5%
    • Age 75-79 = 6%
    • Age 80-84 = 7%
    • Age 85-89 = 9%
    • Age 90-94 = 11%
    • Age 95+ = 14%

If you want to work out how long your account-based pension might last, click here to access ASIC’s account-based pension calculator.

When is superannuation payable?

Employers must pay superannuation at least four times per year. The due dates are 28 January, 28 April, 28 July and 28 October.

How do you create a superannuation account?

Before you create a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).

How much superannuation should I have at age 40?

The amount of superannuation you should have at age 40 is based on how much money you need to have at retirement. That, in turn, is based on how much money you expect to spend each week during your retirement. That, in turn, depends on whether you expect to lead a modest retirement or a comfortable retirement.

The Association of Superannuation Funds of Australia (ASFA) estimates you would need the following amount per week:

Lifestyle Singles Couples
Modest $465 $668
Comfortable $837 $1,150

Here is the superannuation balance you would need to fund that level of spending:

Lifestyle Singles Couples
Modest $50,000 $35,000
Comfortable $545,000 $640,000

These figures come from the March 2017 edition of the ASFA Retirement Standard.

The reason people on modest lifestyles need so much less money is because they qualify for a far bigger age pension.

Here is how ASFA defines retirement lifestyles:

Category Comfortable Modest Age pension
Holidays One annual holiday in Australia One or two short breaks in Australia near where you live Shorter breaks or day trips in your own city
Eating out Regularly eat out at restaurants. Good range and quality of food Infrequently eat out at restaurants. Cheaper and less food Only club special meals or inexpensive takeaway
Car Owning a reasonable car Owning an older, less reliable car No car – or, if you do, a struggle to afford the upkeep
Alcohol Bottled wine Casked wine Homebrew beer or no alcohol
Clothing Good clothes Reasonable clothes Basic clothes
Hair Regular haircuts at a good hairdresser Regular haircuts at a basic salon Less frequent haircuts or getting a friend to do it
Leisure A range of regular leisure activities One paid leisure activity, infrequently Free or low-cost leisure activities
Electronics A range of electronic equipment Not much scope to run an air conditioner Less heating in winter
Maintenance Replace kitchen and bathroom over 20 years No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom No budget to fix home problems like a leaky roof
Insurance Private health insurance Private health insurance No private health insurance