Nila Sweeney

Would you like to retire with $125,000 extra in your super? It’s not as hard as it sounds. Check out YMM’s seven simple strategies to super-size your retirement savings.

 

1. Make co-contributions

 

The strategy:

 

If you are a low- or middle-income earner, you can make personal contributions to your super fund and the Commonwealth Government will match them up to $1,000, depending on your income.

 

The rules:

 

To get the $1,000 maximum entitlement, you can earn no more than $31,920 a year. The entitlement decreases 3.33 cents for every dollar up to the higher income threshold of $61,920 a year, at which point you’re no longer eligible.

 

The benefits:

 

You get free money from the government in return for showing dedication to saving. If eligible, just make the contribution and lodge an income tax return. Co-contributions are not subject to tax when paid to your super fund, nor are they included as income in your tax return.

 

Things to remember:

 

In addition to the basic criteria, you must satisfy the following:

 

  • 10% or more of your income must come from eligible employment-related activities
     
  • You are younger than 71 at the end of the income year
     
  • You are not the holder of a temporary visa at any time during the income year unless you are a New Zealand citizen

 

The expert says:

 

Co-contributions are very small arrangements. The best strategy is to make the contribution if you can afford it and get more back later.

 

Hot tip: Only contribute what you can afford, as the money is preserved in your super fund and can only be accessed when you turn 65 or retire permanently

 

2. Salary sacrifice

 

The strategy:

 

You can make an arrangement with your employer to forego a percentage of your future before-tax salary or wages and transform it into super payments.

 

The rules:

 

Your arrangement must be for future earnings, rather than wages or entitlements already earned and can’t include annual or long service leave accrued before entering into the deal. Salary sacrifice contributions are concessional, or before tax. The current limits for contributions in a year are $25,000 for under-50s, or $50,000 if you’re over. Exceeding these caps will lead to tax penalties of an additional 31.5%. You must keep relevant documents for five years; including copies of your agreement and documents showing any expenses.

 

The benefits:

 

Wages sacrificed into super are currently only taxed at 15%; generally less than your regular tax bracket. Your annual income will also fall and therefore be subject to less tax. Once retired, you get your sacrificed salary back, knowing more of it has survived tax than you would have otherwise had.

 

Your employer does not have to pay Fringe Benefits Tax (FBT), as long as payments are made to a complying super fund.

 

If you are under 75, your employer can claim a tax deduction on the amount of salary sacrificed contributions they contribute to your super fund.

 

Things to remember:

 

Your salary sacrifice means your income is lower, which in turn lowers the 9% compulsory super guarantee paid by your employer. On top of this, the salary sacrificed amount counts towards your employer’s super obligations. If you sacrifice more than the required 9%, your employer is not required to pay an additional amount.

 

Salary sacrificed amounts will be included on your payment summary and may affect income tests for tax offsets and deductions, the Medicare levy surcharge and government benefits or obligations.

 

The expert says:

 

The caps are only $25,000 for most people, so be careful that you don’t breach. Make sure your employer is paying your super fund in the correct financial year. You might think you have salary sacrificed this year, but they pay it in the next financial year, affecting next year’s caps.

 

 

Hot tip: You and your employer should clearly agree on and document all terms of the arrangement.

 

3. Split super with your spouse

 

The strategy:

 

Some super funds let you transfer a percentage of concessional contributions (pre-tax) to your super from the previous or current financial year to a spouse’s account. Apply through your fund if it offers a splitting option.

 

The rules:

 

You may split up to85% of your own concessional contributions for the financial year with your spouse, but no more than the concessional contributions cap for that year. The receiving spouse must be under 65 and if over 55, not retired. Other forms of contributions such as non-concessional or government co-contributions can’t be split.

 

Same-sex and opposite sex de-facto couples are also eligible for spouse super splitting.

 

The benefits:

 

Super splitting can even up the benefits if one spouse earns less than the other. If one spouse is closer to retirement, you can access more money sooner as a couple.

 

Things to remember:

 

Splitting super does not reduce the contributions originally made by the member for reporting and contribution caps purposes. If your spouse is unemployed or earns less than $13,800 a year, you can make super contributions on their behalf and claim 18% of the first $3,000 contributed as a tax rebate.

 

The expert says:

 

Originally, spouse super splitting was used to move money to the younger spouse, for reasons such as Centrelink age limits. Now it’s moving to the older spouse, to enable an earlier transition to retirement.

 

4. Make non-concessional contributions

 

The strategy:

 

Non-concessional contributions are made using income that has already been taxed. Instead of putting money in a savings account, you can add to your super when it suits you.

 

The rules:

 

The non-concessional cap is currently $150,000 a year. If you wish to contribute more than this, you have the option to bring forward contributions for a three year period. You can then contribute up to $450,000, but must not add to that amount for the remainder of the three-year period. The ‘bring forward’ rules are only available if you are under 65, but the annual contributions cap is in place until you are 74.

 

The benefits:

 

There is no tax on concessional contributions; the money has already been taxed as part of your income. Any extra that a super fund earns on those contributions is taxed at up to 15%, compared to the possible 45% incurred if invested outside of super.

 

Things to remember:

 

The contribution cap does not carry over if not used in full. Excess contributions tax is 46.5%; stay on top of all potential contributions and make sure you do not breach. If under 65, you don’t have to be working to make super contributions. If over 65, you must satisfy a work test to make them: APRA requires you to be ‘gainfully employed’ and complete 40 hours of work in a single 30-day period.

 

The expert says:

 

A lot of fund members are breaching non-concessional caps, mostly by small amounts and on the retail fund side, but of greater concern are the significant breaches made by a minority. They might put $151,000 in this year, $150,000 in next year and then $450,000 in the year after, not realise they had triggered the rule two years prior.“One of our clients contributed $150,300 and that extra $300 resulted in a tax bill of $112,000, which is something that needs to be addressed.”

 

5. Switch investment options

 

The strategy:

 

Your super fund might offer a choice of investments, allowing you to select from shares, fixed interest, cash or property. If done carefully and for the right reasons, switching investment options can improve your super balance.

 

The rules:

 

Contact your super fund for details on how to switch as rules may vary. Many funds will let you switch for free, at least the first time. It is then a matter of processing the purchase and disposal of the shares (or other assets) that make up your investment option.

 

The benefits:

 

You can tailor your fund’s investment options to your own appetite for risk and reward. If you prefer cash or property more than shares, the option is there to take charge. Some funds allow members to select a large portion of the underlying investments, while others let you mix and match types of investment.

 

Things to remember:

 

You don’t have to choose your own investment options, but if you don’t, your money will go into the default option. This might not be the best option for you.

 

Lower risk investments such as cash or fixed interest will yield lower returns than growth investments over the longer term. Consider how long you might live after retirement when deciding what level of return to shoot for.

 

The expert says:

 

Flexibility and options vary, depending on your type of fund. You are generally looking at a basket of investments; your options might be to choose between a balanced fund, a high growth fund or a small cap fund…so you’re switching from one option to another.

 

6. Switch funds

 

The strategy:

 

Most Australians are automatically placed in a super fund when commencing a job. Many do not bother to consider whether or not it suits them. Super is your money and if you don’t like your fund, you can jump ship.

 

The rules:

 

If you decide to switch funds, you must notify your employer and complete a Standard Choice Form (SCF); available from the ATO. After you supply all the required information, your super fund must process the transfer within 30 days.

 

Hot tip: To check your new super fund is complying and regulated, access superfundlookup.gov.au

 

The benefits:

 

Your switch can get you access to better investment performance and lower fees. If your fund is charging higher fees than a similarly performing fund, you will benefit from a move. You might also want to make the change to a fund with a better historical performance than your own.

 

Things to remember:

 

Fund performance can change at any time; much success depends on the asset classes the fund is invested in. Retail funds usually charge the highest fees, to cover any financial advice received, while not-for-profit funds such as industry, corporate and public sector charge lower fees.

 

The expert says:

 

Insurance cover can’t usually be transferred from one fund to another; you would lose that cover and have to start again. When some people switch, they leave a small balance in the fund that they’re switching from, to maintain the life insurance; because generally the cover they have is not a function of their super balance, but a function of their age.

 

7. Start a self-managed super fund (SMSF)

 

The strategy:

 

Self-managed super funds are growing in popularity in Australia, due to the freedom to diversify investments and actively manage money. You can set up a SMSF by yourself or with a maximum of three other people.

 

The rules:

 

The ATO recommends seeking advice from a SMSF professional before setting up. The administrative rules and regulations are many and the tax penalties harsh.

 

You must then choose the trustee structure (corporate or individual), draw up a trust deed with the help of someone qualified to prepare legal documents, register with the ATO and open a bank account in the fund’s name (not your name).

 

Hot tip: You can transfer the contents of your existing fund into an SMSF, by filling out a ‘portability form’, available on the ATO website.

 

The benefits:

 

A SMSF allows you full control of your retirement savings. You can invest as much as you want in different areas and change paths as markets fluctuate so long as you stay within the rules. Having a decent amount of money in your fund could allow you to run it for less cost than the annual fees of a conventional fund. SMSF contributions are tax deductible and earnings are taxed at a maximum of 15%.

 

SMSFs can continue after your death, benefiting surviving family members if the fund is structured that way.

 

Things to remember:

 

Setting up an SMSF means the onus is completely on you to ensure you comply with stringent superannuation and tax laws. Compliance equals a hefty amount of paper work and attention to administration, keeping records, organising audits, staying up to date with legal developments and other duties.

 

Your investment freedom may come at the expense of a professional’s know-how. You may find yourself seeking help from brokers and advisers, at a price.

 

Regular super funds often come with some level of insurance coverage. Opening a SMSF means you are responsible for organising any life, disability and income protection insurance you may need.

 

The expert says:

 

Determining the fund structure is important. Around 88% are set up with individual trustees; the ATO prefers corporate trustees. Starting an SMSF with a corporate structure will help avoid asset ownership confusion – particularly for real estate; make administration easier – if members come and go you don’t need to change investment names each time; and allow for majority rules decisions on estate planning.

 

Hot tip: You can’t ask a super fund to roll money into your SMSF until you’ve got an ABN

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