You’ve got questions – Angelo’s got answers!
Have you ever wondered who you’re chatting with when you call us? You might speak to Angelo, who understands all the ins and outs of super legislation, including contributions, and loves to answer questions and help members.
Angelo, from the Member Solutions Team based in Australia, helps hundreds of members every year with all kinds of super queries. With the important super changes that came in on 1 July 2021, here is a selection of questions on contributions that came his way.
The answers to these questions are limited to general information only. You should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions. If you are after a personal recommendation, call us on 1800 025 241 and we can refer you to the appropriate person.
Q. Why should I contribute?
A. Simply because contributing even a little bit extra now can have a big impact later. The power of compounding interest (generating investment returns on the returns you’ve already earned) and the chance to reduce the amount of tax you pay (for example, via salary sacrificing) could give your super just the boost it needs.
What’s more, if you’re on a lower income and make personal after-tax contributions to your super, you may be eligible for a top up from the government up to a maximum amount of $500.
Q. What is the difference between before-tax and after-tax contributions?
A. The main difference is where your contribution comes from – your net or gross salary.
You’re making a before-tax (or concessional) contribution when the contribution comes from your salary before income tax has been calculated. Examples include employer contributions and salary sacrifice.
You’re making an after-tax (or non-concessional) contribution when the contribution comes from your salary after income tax has been calculated. An example would be making a direct payment into your super from your bank account.
Q. I want to start making regular contributions by salary sacrificing. What do I need to do?
A. Salary sacrificing helps to reduce your taxable income, while saving for super. However, first of all, talk to your employer’s HR or Payroll team to make sure your employer is on board.
A before-tax contribution, salary sacrifice means deducting a contribution from your gross salary before income tax has been calculated.
However, it’s important to keep in mind that salary sacrifice amounts form part of your before-tax contribution limit, which also includes your employer’s super contributions and any personal contribution for which you have claimed a tax deduction.
Q. I have been out of work for a while and don’t have much super. My partner wants to put some money into my super. How does that work?
A. Splitting contributions can help to level super benefits between a couple.
If your partner is under 65 years old, they can transfer some of their super to you once every financial year. They may transfer up to 85% of the gross before-tax contributions made to their account in the previous financial year. If your partner has a Defined Benefit account, they will usually only be able to split any voluntary contributions.
Q. I heard that my employer super rate has increased. What does this mean?
A. It’s good news! It means more money is going into your super.
From 1 July 2021, your employer super guarantee (SG) rate increased from 9.5% to 10%. For example, if you earn $90,000 a year before tax, at the 9.5% rate you’d have got $8,550 in employer super, while at the new 10% rate, you get $9,000. That’s $450 in extra super a year! Over time and with compounding interest, this could make a big difference to your retirement income. This SG rate is also expected to increase each year until it reaches 12% in 2025.
You may want to check with your employer on how this rate increase will come through for you. For example, would your take home pay reduce by 0.5%? Or would you need to review your salary packaging arrangement?
Q. How much can I put in?
A. That depends. From 1 July 2021, the before-tax contributions limit is
$27,500 per year. If you put in more than this, you may have to pay extra tax.
However, this limit may be higher if you haven’t used the full cap amount in the five previous financial years. Called the ‘carry-forward of concessional contributions’, it’s a great way to make extra contributions above the general cap, without having to pay extra tax. Interested? Use the ATO on line services on your myGov account to find out more.
From 1 July 2021, the after-tax contributions limit is at $110,000 per year. Just like with before-tax contributions, if you go over this number, you may have to pay extra tax. Also, if your total super balance is at or over $1.7 million, you can’t make any after-tax contributions.
If you’re under 65, from 1 July 2021, you may be able to put $330,000 into super as an after-tax contribution under the ‘bring forward’ rule. Under this rule, those under 65 can contribute three years’ worth of after-tax contributions to their super in one year. It’s worth noting that once you’ve used the total bring-forward cap in the first year, you’ll have a nil cap for the next two years.
Don’t forget to keep track of your contributions on a regular basis. If you go over your limit on either before-tax or after-tax contributions, you will have to pay the highest marginal tax rate on the excess amount.