How to make super contributions a habit in the time of COVID

How to make super contributions a habit in the time of COVID

If you, like many Australians, haven’t given much thought to your superannuation balance before, 2021 may be the right time to start.

If the last year has taught us anything, it’s that we cannot predict the future. The Covid-19 pandemic was responsible for heightened uncertainty in global share markets, and your super balance may have felt the impacts.

Over the March 2020 quarter, Australian Bureau of Statistics figures show total superannuation financial assets fell by $258.4 billion. By the end of June, recovery in the form of valuation gains in share markets was prevalent across this sector, with an increase of $130.2 billion in financial assets.

On top of this, tens of thousands of Australians were given access to withdraw funds from their super due to economic challenges from Covid-19. Thanks to the Early Release Super Scheme, over $3.8 billion had been withdrawn between April and December 2020.

All of these factors may have resulted in your superannuation balance dropping or dipping lower than you’d like for your retirement balance target. This is where superannuation contributions come in.

Let’s explore how you can make superannuation contributions a habit in 2021, and better set yourself up for a comfortable retirement.

Salary sacrificing

The easiest way to make growing your super balance a habit is to set it and forget it with salary sacrificing, also known as concessional contributions. This is where your employer takes part of your pre-tax salary, as determined by you, and pays it directly into your superannuation account.

Simply look at your income and how much you may be able to afford to put away each payday and reach out to your employer/accounts department. Salary sacrificing isn’t considered part of your super guarantee contributions, so even if you sacrifice 5 per cent more into your super, your employer will still need to pay the 9.5 per cent guarantee amount.

Salary sacrificing may have tax benefits as well. The payments are taxed at a rate of 15 per cent, which for some may be lower than their marginal tax rate. The maximum you can contribute per financial year is $25,000.

After-tax contributions

You may also want to consider making personal contributions into your super account, also known as non-concessional contributions. Unlike salary sacrificing, this option involves contributing funds from your income after tax. You can make up to $100,000 in after-tax contributions each financial year.

You may want to make contributions on an ongoing basis, similar to salary sacrificing, or as a one-off deposit. Again, if you’re considering ongoing contributions, you’ll want to take stock of your income and budget a certain amount that you are comfortable putting into your account.

How much can I afford to contribute?

You’d be surprised just how much spare change you may have if you consider cutting out some of life’s little luxuries.

RateCity crunched the numbers on some of our favourite luxuries, and just how much more you could be adding to your superannuation by putting one or more of these into your account instead.

Cost of everyday luxuries

ITEM COST FREQUENCY COST PER WEEK COST PER YEAR
Coffee

$3.50

x7 per week

$24.50

$1,274

Wine

$20

x1 per week

$20.00

$1,040

Six pack of beer

$20

x1 per week

$20.00

$1,040

Public transport

$4

x1 trip per week

$4.00

$208

Uber/Taxi

$20

x1 trip per week

$20.00

$1,040

Bottled water

$3

x3 per week

$9.00

$468

Breakfast out

$20

x1 per week

$20.00

$1,040

Buying lunch

$10

x3 per week

$30.00

$1,560

Block of chocolate

$5

x1 per week

$5

$260

Subscription TV

$99

x1 per month

 

$1,188

Gym Membership

$20

1x per week

$20

$1,040

No one is recommending anyone skip their morning coffee. But it’s worth keeping in mind that if you’re the type of person who buys multiple cups a day, skipping even half of those coffees and putting the savings into your super could allow you to contribute $637 that you never knew you had.

In the end, the decision to make additional super contributions outside of the 9.5 per cent guarantee is up to your personal situation and budget. It may be worth reaching out to an accountant for more personal financial advice.

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Learn more about superannuation

How does superannuation work?

Superannuation is paid by employers to employees, at least once every three months. The ‘superannuation guarantee’ is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary. The guarantee is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Superannuation is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

You can withdraw your superannuation when you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

 

How much is superannuation?

Superannuation is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

How much is superannuation in Australia?

Superannuation in Australia is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

How is superannuation calculated?

Superannuation is calculated at the rate of 9.5 per cent of your gross salary and wages. So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

How do you calculate superannuation?

Superannuation is calculated at the rate of 9.5 per cent of your gross salary and wages. So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

What is the superannuation rate?

The superannuation rate, or guarantee rate, is the percentage of your salary that your employer must pay into your superannuation fund. The superannuation guarantee has been set at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

How do you pay superannuation?

Superannuation is paid by employers to employees. Employers are required to pay superannuation to all their staff if the staff are:

  • Over 18 and earn more than $450 before tax in a calendar month
  • Under 18, work more than 30 hours per week and earn more than $450 before tax in a calendar month

This applies even if the staff are casual employees, part-time employees, contractors (provided the contract is mainly for their labour) or temporary residents.

Currently, the superannuation rate is currently 9.5 per cent of an employee’s ordinary time earnings. This is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

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

How can I increase my superannuation?

You can increase your superannuation through a ‘salary sacrifice’. This is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Like regular superannuation contributions, salary sacrifices are taxed at 15 per cent when they are paid into the fund.

How do you calculate superannuation from a total package?

Superannuation is calculated at the rate of 9.5 per cent of your ‘ordinary-time earnings’. (For most people, ordinary-time earnings are their gross annual salary or wages.) So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

As the Australian Taxation Office explains, some items are excluded from ordinary-time earnings. They include:

  • Overtime work paid at overtime rates
  • Expense allowances that are fully expended
  • Expenses that are reimbursed
  • Unfair dismissal payments
  • Workers’ compensation payments
  • Parental leave
  • Jury duty
  • Defence reserve service
  • Unused annual leave when employment is terminated
  • Unused long service leave when employment is terminated
  • Unused sick leave when employment is terminated

Although the superannuation guarantee is currently at 9.5 per cent, it is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Is superannuation taxed?

Superannuation is taxed. It is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

What is salary sacrificing?

A salary sacrifice is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Salary sacrifices come out of your pre-tax income, whereas personal contributions come out of your after-tax income.

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.

Can I buy a house with my superannuation?

First home buyers are the only people who can use their superannuation to buy a property. The federal government has created the First Home Super Saver Scheme to help first home buyers save for a deposit. First home buyers can make voluntary contributions of up to $15,000 per year, and $30,000 in total, to their superannuation account. These contributions are taxed at 15 per cent, along with deemed earnings. Withdrawals are taxed at marginal tax rates minus a tax offset of 30 percentage points.

Voluntary contributions to the First Home Super Saver Scheme are not exempt from the $25,000 annual limit on concessional contributions. So if you pay $15,000 per year into the First Home Super Saver Scheme, you have to make sure that you don’t receive more than $10,000 in superannuation payments from your employer and any salary sacrificing.

What are concessional contributions?

Concessional contributions are pre-tax payments into your superannuation account. The payments made by your employer are concessional payments. You can also make concessional contributions with a salary sacrifice.