When you’re self-employed or working as a contractor, superannuation often takes a back seat. But superannuation is one of the most important financial issues independent contractors must deal with.
Failing to put measures in place while you’re working can leave you with insufficient funds to support the type of lifestyle you’re planning to enjoy in retirement.
The good news for the self-employed and independent contractors is there are super options available. Take a look at the ins and outs of super for the self-employed to get an idea of the steps you’ll need to take to ensure you have enough of a nest egg to fund the retirement you want.
Why do independent contractors need to think about super?
When you’re working as part of a larger company, super is often something that’s taken care of for you. Your employer will be required by law to make compulsory contributions to your superannuation account as part of your overall wage package.
For the self-employed and those on independent contracts, superannuation can work differently.
If you’re a self-employed contractor, you run your own business and don’t work for an employer. In this case, it’s up to you to put a plan in place that will fund your retirement. You can open a super account like anyone else, but it is your responsibility to make contributions, whether they’re regular payments or occasional lump sums.
If you take a contract position with an employer where you are hired wholly or principally for your labour, the employer will be required to pay you super as an employee. If you don’t nominate your own super fund, this superannuation will be paid into a default fund of your employer’s choice. If you take contract positions with several different employers over the course of your career, you could find yourself with multiple super accounts in your name, each one charging you fees.
Why should I open a super account as an independent contractor?
There are many reasons why someone who is self-employed or regularly works on independent contracts might be looking to open their own superannuation account:
- Grow your wealth – Many super funds are set up to grow wealth for their members. When you’ve opened an account with a superannuation fund as an independent contractor, your deposits will be invested by professionals working for the super fund, with a view to grow the wealth for the fund’s members and increase the balance these members can draw on in retirement.
- Tax-effective investment – Superannuation can be a tax-effective investment in and of itself, but adding to your super balance can also be a way of reducing the amount of tax you pay on your income. It may be possible to effectively lower your tax bill and grow your nest egg simultaneously.
- It’s not as hard as it seems – While managing superannuation is a little more difficult for independent contractors than it is for those who have everything taken of by the accounts department, it isn’t as hard as it seems. Many super funds are designed to make super easy for the self-employed. And taking an active interest in your superannuation situation can help make you better-informed, so you can grow your balance.
What are government superannuation co-contributions?
Depending on the amount of money you earn as an independent contractor, you might be eligible for a government super contribution, up to a maximum amount of $500 per year.
This could be a way for many self-employed superannuation account owners to further grow their balance and add to their retirement funds.
Your eligibility to receive a government co-contribution to your super fund may depend on how much super you have deposited into your fund before the end of the financial year, as well as your income and other factors.
When you lodge your tax return, the government will determine whether you’re eligible, and deposit the co-contribution automatically if the super fund has your tax file number attached.
Contact the ATO for more information.