Six ways to boost your super balance

Six ways to boost your super balance

It can take an entire lifetime to build up enough savings to retire comfortably.

Yet thanks to the economic impacts of COVID-19, 1.41 million Australians made the decision to dip into their superannuation to prop up their finances during the downturn. 

If your retirement savings has been set back because you had to take funds from it, or if your super has taken a nosedive thanks to the shaky share market, chances are you’re more concerned than you’ve ever been about your nest egg.

For those who are in a tight spot with their super, RateCity has put together six ways to realistically grow your retirement funds.

Before making any decisions relating to your super, consider speaking to a financial advisor who can provide financial advice tailored to your personal situation.

1. Get to know your super

You can’t grow your super if you don’t understand it. It’s worthwhile to be across:

  • how much super you have in total.
  • how many super accounts you hold.
  • your super’s growth rate.
  • how your super is invested (balanced or growth, etc).
  • the fees charged.
  • how much your employer is contributing and how regularly.

Understanding your super could help you make better decisions about how you manage your wealth.

2. Compare your super options

Just like how you would do your research when you shop for a new laptop, it makes sense to make sure you’re getting the best bang for your buck with super. While it’s not advised to switch to a lower risk option, it doesn’t hurt to compare what other super funds are out there. The main things you could compare include fees, returns, includes insurance, premiums and whether it comes with financial planning services. To weigh up your super options, consider using RateCity’s comparison table

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3. Consolidate your super

Remember that every super account you hold charges fees and, if you have insurance attached, premiums. These charges can significantly reduce your super balance over time.

By keeping your super in one account, you may be charged less in fees and premiums, so it’s likely you’ll have more funds left over when you retire. Check with your super provider how you should consolidate, but usually you can do it online or over the phone. Make sure you’re aware of any included insurance in your super, as these could be stopped when you close a super account.

4. Make extra contributions

For the serious long-term thinkers, it could be a good move to contribute additional payments to your super. You can do this regularly through salary sacrificing, which is when your employer tops up your super from your pre-tax income. These contributions are taxed at a 15 per cent rate when it reaches your super fund.

You can also load up your nest egg by making after-tax contributions. You may even be able to save on tax by claiming a tax deduction for any after-tax contributions. Note that there are caps to the extra contributions you can make and if you exceed the cap, you may need to fork out extra tax. It’s best to consult your tax accountant or financial adviser for advice about your financial situation.

5. Assess your insurance cover

Many super members usually receive insurance automatically without even realising it. This means they might not know what cover they’re getting, the level of cover they have and how much it’s costing them in ongoing premiums. To find out the details and check if it’s the right cover for you, consider going through your product disclosure statement (PDS), which can be found on your super provider’s website.

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6. Chip in to your spouse’s nest egg

It’s not just all about you. If your spouse works part-time, is on a lower income than you or is taking a career break (to have a baby, for example), chances are they’re missing out on a big chunk of super.

You can help boost their retirement savings by making contributions on their behalf. If you’ve recently made contributions to your own super, it’s possible to transfer a portion of these to your spouse’s super account. By making a spouse contribution, you may benefit from a tax offset.

However, not every super fund offers this option and it may charge you a fee for doing this. Check with your super provider to find out more details.

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Learn more about superannuation

What are personal contributions?

A personal contribution is when you make an extra payment into your superannuation account. The difference between personal contributions and salary sacrifices is that the former comes out of your after-tax income, while the latter comes out of your pre-tax income.

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

 

What should I know before getting an SMSF?

Four questions to ask yourself before taking out an SMSF include:

  1. Do I have enough superannuation to justify the higher set-up and running costs?
  2. Am I able to handle complicated compliance obligations?
  3. Am I willing to spend lots of time researching investment options?
  4. Do I have the skill to make big financial decisions?

It’s also worth remembering that ordinary superannuation funds usually offer discounted life insurance and disability insurance. These discounts would no longer be available if you decided to manage your own super.

What fees do superannuation funds charge?

Superannuation funds can charge a range of fees, including:

  • Activity-based fees – for specific, irregular services, such as splitting an account after a divorce
  • Administration fees – to cover the cost of managing your account
  • Advice fees – for personal investment advice
  • Buy/sell spread fees – when you make contributions, switches and withdrawals
  • Exit fees – when you close your account
  • Investment fees – to cover the cost of managing your investments
  • Switching fees – when you choose a new investment option within the same fund

Can I transfer money from overseas into my superannuation account?

Yes, you can transfer money from overseas into your superannuation account – under certain conditions. First, you must provide your tax file number to your fund. Second, if you are aged between 65 and 74, you must have worked at least 40 hours within 30 consecutive days in a financial year. (Australians under 65 aren’t subject to a work test; Australians aged 75 and over cannot receive contributions to their superannuation account.)

Money transferred from overseas will generally count to both your concessional contributions limit and your non-concessional contributions limit. You will have to pay income tax on the applicable fund earnings component of any money transferred from overseas. You might also be liable for excess contributions tax.

What is a superannuation fund?

A superannuation fund is an institution that is legally allowed to hold and invest your superannuation. There are more than 200 different superannuation funds in Australia. They come in five different types:

  • Retail funds
  • Industry funds
  • Public sector funds
  • Corporate funds
  • Self-managed super funds

Retail funds are usually run by banks or investment companies.

Industry funds were originally designed for workers from a particular industry, but are now open to anyone.

Public sector funds were originally designed for people working for federal or state government departments. Most are still reserved for government employees.

Corporate funds are arranged by employers for their employees.

Self-managed super funds are private superannuation funds that allow people to directly invest their money.

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

What age can I withdraw my superannuation?

You can withdraw your superannuation (or at least some of it) when you reach ‘preservation age’. The preservation age is based on date of birth. Here are the six different categories:

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

When you reach preservation age, you can withdraw all your superannuation if you’re retired. If you’re still working, you can begin a ‘transition to retirement’, which allows you to withdraw 10 per cent of their superannuation each financial year.

You can also withdraw all your superannuation once you reach 65 years.

Do I have to pay myself superannuation if I'm self-employed?

No, self-employed workers don’t have to pay themselves superannuation. However, if you do pay yourself superannuation, you will probably be able to claim a tax deduction.

Can my employer use money from my superannuation account?

No, your employer can’t touch the money that is paid into your superannuation account.

Am I entitled to superannuation if I'm a part-time employee?

As a part-time employee, you’re 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

What contributions can SMSFs accept?

SMSFs can accept mandated employer contributions from an employer at any time (Funds need an electronic service address to receive the contributions).

However, SMSFs can’t accept contributions from members who don’t have tax file numbers.

Also, they generally can’t accept assets as contributions from members and they generally can’t accept non-mandated contributions for members who are 75 or older.

Am I entitled to superannuation if I'm a contractor?

As a contractor, you’re entitled to superannuation if:

  • The contract is mainly for your labour
  • 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

Please note that you’re entitled to superannuation even if you have an Australian business number (ABN).

Is superannuation compulsory?

Superannuation is compulsory. Generally speaking, it can’t be touched until you’re at least 55 years old.