Maximising your Superannuation

Maximising your Superannuation

Thanks to our high standard of living and modern medical advances Australians are now living longer than ever before. While this is obviously good news, it also represents some challenges for most of us as our retirement savings may have to fund our lifestyle for longer than ever before. For some of us, it may even mean that our life in retirement will run for as long as our working life.

Depending on the standard of living and retirement goals you’ve set yourself, the 9.5% superannuation guarantee payment may not be enough to fund your retirement. The key to any successful retirement plan is to start taking an interest now.

With this in mind there are a number of simple strategies you can implement to give your super a real boost regardless of your salary bracket or access to additional savings funds.

1. Consolidate your super funds

If you’ve ever had more than one job, you are likely to have more than one super fund. It’s also possible that these additional super holdings are under very different and possibly expensive fee structures.

By consolidating your super funds into one account, you may have access to a more appropriate asset allocation – opening up the possibility for improved performance, save on overall fees, and are in a better position to monitor the performance of your superannuation assets and benefit from less paperwork. A Lifespan adviser can assist you in finding your lost super, or you can establish whether you have any lost super using the ATO’s SuperSeeker tool.

2. Consider extra super contributions through a Salary Sacrifice strategy

Salary sacrifice is a tax effective way to save additional amounts for your retirement. Through an arrangement with your employer you pay part of your pre-tax salary directly into your super account. In doing this, you reduce the amount of overall tax you pay on your salary and grow your superannuation balance as a result.

3. Spouse rebate

For non-working spouse or those in a low income environment, you and your spouse may benefit from this type of contribution. To qualify, you must be a non-income earning spouse or earn less than $13,800 pa.

When your spouse adds money to your super fund, not only will they boost your super but they also receive an 18% income tax rebate for contributions up to $3,000 per annum. If you are uncertain of your entitlements in this area please contact us for further details as to whether you qualify for this rebate.

4. Government co-contribution scheme

Government co-contributions are designed to help low-middle income earners boost their super. If you earn less than $49,488 and make a personal after-tax contribution from your salary or savings to your super, if you’re eligible, the government could match it, dollar for dollar up to the value of $500 pa.


Take a stronger interest in your super

Apart from assessing the merits of some or all of the above strategies everyone should take a stronger interest in their superannuation savings, and the earlier the better.

20 years from retirement

  • Develop a better understanding of asset classes and superannuation
  • Give consideration to how much you need for retirement
  • Ensure your long term goals and retirement objectives are factored into your wealth strategies
  • Gain insight into some basic financial concepts such as the effects of compounding and the benefits to be gained from having some of assets within more favourable tax structures such as superannuation

At 15 Years

  • Plan wealth optimisation strategies to set yourself up for the next phase of your life
  • Implement tax efficient strategies
  • Develop a business succession plan – leverage the value of your business and develop a clear succession plan that maximises your financial returns when you sell your business
  • Ensure your long-term goals and retirement objectives are factored into your wealth strategies

10 years out from retiring

  • Learn about all the available key strategies you should implement when approaching retirement
  • Start your transition to retirement strategy
  • Plan for your immediate priorities during your first years in retirement


Boosting Retirement savings can make a noticeable difference

The government has introduced generous incentives to encourage you to contribute before or after tax dollars (or a combination of both) to the tax effective superannuation environment.

These incentives are summarised as follows:-

    • For those with a higher marginal tax rate the opportunity to contribute a portion of your pre-tax salary to superannuation by way of a salary sacrifice agreement with your employer. This has the effect of reducing your assessable income and hence the amount of personal income tax you pay.
    • If your assessable income plus reportable fringe benefits is less than $48,516 (2013/14 financial year) and you make an after tax contribution to superannuation, you may be eligible to receive government co-contributions of up to $0.50 for each $1.00 after tax contribution made up to a maximum of $500 per annum.
    • Investments held in the superannuation environment are taxed a maximum rate of 15% which represents a significant saving for most people.
    • Monies may be withdrawn tax-free from age 60 subject to certain conditions.

Case Study:

Colin is aged 51 and earns $60,000 per annum.
    • Colin intends to retire at age 60 and decides to save his surplus income of $10,000 per annum to build up his retirement nest egg.
    • He requires an after tax income of about $37,850 to meet his regular expenditure needs.
    • Colin has confirmed that he will not require access to his capital until he retires.

Colin understands that at his age, investing his surplus income into superannuation rather than through direct investments offers him a better outcome, as the tax paid on his earnings is far less inside super (maximum of 15%) than if invested outside of super (up to 48%).

Let’s compare the outcomes of Colin investing his surplus income into his superannuation account through a salary sacrifice strategy (using pre-tax money) compared to investing his surplus after tax income into superannuation investments:

As demonstrated in the following table, by making a pre-tax contribution to superannuation of $15,625 via salary sacrifice, Colin is able to reduce his personal taxation liability and increase his pre-tax contributions into super without impacting his living expenses.

Cash flow comparison

Current Situation

Proposed Strategy

Gross salary

$60,000

$60,000

(Less) salary sacrifice (pre-tax)

$0

$15,625

Assessable (taxable) Income

$60,000

$44,375

Income Tax payable

($11,047)

($5,969)

Low Income Tax Offset (LITO)

$100

$334

Medicare Levy – 2%

($1,200)

($887)

Net (after tax) Income

$47,853

$37,853

Living Expenses

$37,853

$37,853

Surplus Income available to make after tax super contributions

$10,000

$0

Colin has two options when contributing his surplus income into super. He can either contribute the surplus after tax income, or salary sacrifice additional pre-tax amounts into his superannuation account. Taking into consideration taxation savings, by contributing to super via salary sacrifice, his strategy will provide an additional $3,281 for investment in the first year:

Superannuation Fund Results

Current Situation

Proposed Strategy

Personal SGC – 9.5% on $60,000 salary

$5,700

$5,700

After Tax Super Contribution

$10,000

$0

Salary Sacrifice Contribution

$0

$15,625

Income Tax on 9.5% SGC contributions (@ 15%)

($855)

($855)

Income Tax on Salary Sacrifice Contributions (@ 15%)

$0

($2,344)

Super Balance net of taxes

$14,845

$18,126

Difference

$3,281

The following taxation comparison shows that Colin’s personal taxation liability will reduce by $5,078 and his overall tax payable will reduce by $3,281 taking into account the 15% contributions tax.

Income Tax & Medicare Levy Position

Current Situation

Proposed Strategy

Personal – Gross Income Tax

($11,047)

($5,969)

Personal – Low Income Tax Offset

$100

$334

Personal – Medicare Levy – @ 2%

($1,200)

($887)

Superannuation – Income Tax on SGC (@ 15%)

($855)

($855)

Superannuation – Income Tax on additional salary sacrifice contributions (@15%)

$0

($2,344)

Total Income Tax & Medicare Levy Payable

($13,002)

($9,721)

Difference

$3,281

Colin’s superannuation investment earnings will also be taxed internally at a maximum rate of 15% compared to a rate of 31.5% in Colin’s hands if the monies were invested outside of the superannuation environment.

Outcomes

By simply restructuring how Colin contributes surplus income into his retirement nest egg he can increase his overall superannuation balance by approximately $3,281 per annum every year until he retires at age 60.

In addition, at age 55 he can possibly further enhance his retirement savings outcomes by exploring the use of a Transition to Retirement (TTR) pension strategy.

Things you need to be aware of:

In return for these generous incentives the government has imposed restrictions on access and the amount which may be contributed to superannuation.

Lump sum access to your retirement savings in super is restricted until age 65 or the earlier of an individual satisfying a condition of release such as permanent retirement from the work force when reaching their preservation age, or resigning from a position between 60 and 65 years of age.

The following contributions restrictions also apply for the 2014/15 financial year:

Age at 30 June

Non-concessional cap  (non-taxable) contributions

eg. made from your bank savings 

Concessional cap (taxable, indexed to AWOTE in $5,000 increments)

eg. pre-tax employment income

Under 65

$180,000 per year OR $540,000 over a 3 year period

$30,000/*$35,000

* Higher cap applies for people aged 49 or over at June 30, 2014.

One of the hardest things to do is to work out how much you should contribute to superannuation to optimise your retirement savings.

Your Lifespan financial adviser will be able to assist in formulating a retirement planning strategy which is tailored to your personal needs taking into account lifestyles issues, your cash flow requirements, taxation issues and your existing asset base.