Posted on 08/02/2021
Do you have a superannuation strategy? If not, you’re not alone. Super isn’t something many of us think about from day-to-day, but the more engaged you are in your super now, generally, the better your retirement outcomes may be.
According to Opel Nelson, Associate Financial Planner at Statewide Super, most women end up with far less superannuation than men when it comes to retirement.* This is often due to the gender pay gap and women taking more time out of the workforce for caring roles – such as having children or looking after family members.
That’s why it’s even more important for women to have a good relationship with their super.
Fortunately, there are a number of ways that you could utilise the superannuation system for your benefit.
Opel says that understanding the tax incentives that may be available when saving money through your super fund, and having a solid strategy for this, is a great place to start.
So here’s a quick summary of the different ways you could save more and possibly pay less tax, through your superannuation fund today!
Incentives for saving through super
The government has laws in place that state that your employer is required to pay 9.5% of your ordinary time earnings – generally your salary or wages – into your super fund. This is known as the superannuation guarantee.
In addition to those employer contributions, you can also make your own contributions to accelerate your savings.
“The super system can provide tax advantages that help encourage us to save,” Opel says.
“Money that our employer contributes, or money that we salary sacrifice, is typically taxed at a rate of 15% – and for most of us, that's less than our income tax rate.
“This provides an incentive to save through our superannuation funds, as it allows us to access a concessional (or lower) rate of tax.”
Types of contributions
In addition to employer contributions, there are two options in making your own contributions. Each option has different benefits – with the right one for you dependent on your own situation.
“Firstly, we have Salary Sacrifice – otherwise known as pre-tax contributions. Salary Sacrifice contributions come out of your salary or earnings pre-tax and help reduce your taxable income, so it may save you money on tax,” Opel says.
“These contributions are taxed at a rate of 15% once they hit your super fund, instead of being taxed at your marginal tax rate.”
Due to the concessional tax rate, there are limits on how much you can contribute. Pre-tax contributions (or contributions for which you claim a tax deduction) are currently capped at $25,000p.a. – this figure includes the amount that your employer pays in.
“Secondly, we have after tax or non-concessional contributions. After-tax contributions come out of your net income, they don't have the same tax advantages as you've already paid tax on this money before it goes into the fund,” Opel says.
“Because of this, the amount you can contribute is generally a lot higher. Depending on your situation, you may choose to make an after-tax contribution to be eligible to receive a government co-contribution.
“The co-contribution is a top-up from the Federal Government of up to $500 into your super.”
Whether or not you receive a co-contribution, will depend on how much you contribute and your income level.
Given the different advantages of pre-tax (concessional) and after-tax (non-concessional) contributions, it’s best to speak with a financial planner before making a decision about the right type of contribution for you.
To learn more about superannuation savings strategies that are right for you, contact Statewide Super today to speak with one of our financial planners.