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

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 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 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

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.

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.

What happens to my insurance cover if I change superannuation funds?

Some superannuation funds will allow you to transfer your insurance cover, without interruption, if you switch. However, others won’t. So it’s important you check before changing funds.

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.

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.

How do you set up superannuation?

Before you set up 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 long after divorce can you claim superannuation?

You or your partner could be forced to surrender part of your superannuation if you divorce, just like with other assets.

You can file a claim for division of property – including superannuation – as soon as you divorce. However, the claim has to be filed within one year of the divorce.

Your superannuation could be affected even if you’re in a de facto relationship – that is, living together as a couple without being officially married.

In that case, the claim has to be filed within two years of the date of separation.

Either way, the first thing to consider is whether you’re a member of a standard, APRA-regulated superannuation fund or if you’re a member of a self-managed superannuation fund (SMSF), because different rules apply.

Standard superannuation funds

If your relationship breaks down, your superannuation savings might be divided by court order or by agreement.

The rules of the superannuation fund will dictate whether this transfer happens immediately, or in the future when the person who has to make the transfer is allowed to access the rest of their superannuation (i.e. at or near retirement).

Click here for more information.

SMSFs

If your relationship breaks down, you must continue to observe the trust deed of your SMSF.

So if you and your partner are both members of the same SMSF, neither party is allowed to use the fund to inflict ‘punishment’ – such as by excluding the other party from the decision-making process or refusing their request to roll their money into another superannuation fund.

This no-punishment rule applies even if the two parties are involved in legal proceedings.

Click here for more information.

Financial consequences

Superannuation funds often charge a fee for splitting accounts after a relationship breakdown.

Splitting superannuation can also impact the size of your total super balance and how your super is taxed.

Click here for more information.

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

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.

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).

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.