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Building a sizeable retirement nest egg can take some effort, but a recent study by Roy Morgan found only 18% of employees with super currently have more than the compulsory 9.5% of their salary or wages going into their super fund account.
This is a significant drop from 2009, when nearly a quarter (23%) of workers were making additional contributions to their super account.
Superannuation research house SuperRatings also reported that the average voluntary contribution in 2016/2017 financial year was $1,054, a 10% decline on the previous year. SuperRatings said that voluntary contributions “more than halved in the years following the GFC but have slowly climbed since then”.
This is worrying, since most retirement experts believe without some additional super contributions, your employer’s 9.5% Superannuation Guarantee (SG) contributions on their own will be insufficient to self-fund your retirement.
But if you want to give your super account a boost by making extra contributions, it can be a little confusing to work out what additional payments you can make. To help, here’s a simple overview of some of the key types of super contributions and the rules for making these contributions.
Super contributions: the two basics you need to know
1. It’s all about the tax
The key to understanding super contributions is to remember it’s all about what tax you pay. There are two main types of super contributions:
- Concessional (before-tax) contributions
- Non-concessional (after-tax) or personal contributions.
You may also receive contributions into your super account from the Australian Government if you meet certain eligibility criteria.
And if you are aged 65 and over, you can also make a Downsizer contribution into your super account if you decide to sell your home.
The important thing is to focus on, however, is the two key types of contributions: concessional (before-tax) contributions and non-concessional (after-tax) contributions.
2. There are annual caps on your contributions
As there are tax benefits from holding savings in your super account, the government has strict annual caps or limits on both your concessional (before-tax) and non-concessional (after-tax) contributions into super.
The caps are indexed and any contributions you make over these limits are subject to extra tax. The limits apply to the total of all your super accounts across different super funds.
Note: The annual limits apply to a financial year (1 July to 30 June the following year) rather than a calendar year (1 January to 31 December the same year).
| Contribution type | Annual cap or limit (2018/2019) |
|---|---|
| Concessional (before-tax) contributions |
|
| Non-concessional (after-tax) contributions |
|
Concessional (before-tax) super contributions: 5 main types
Note: There is a 15% contributions tax payable on these contributions when they are added to your super account. Your total concessional contributions must not exceed your annual limit.
1. Superannuation Guarantee (SG) contributions
SG contributions are the compulsory contributions made by your employer into your super account on your behalf as part of your pay. In 2018/2019, the SG level is 9.5% of your ordinary time earnings (OTE), but this is set to rise slowly to 12% by 1 July 2025.
| Financial year when SG rate to increase | SG rate |
|---|---|
| 2021/2022 | 10.0% |
| 2022/2023 | 10.5% |
| 2023/2024 | 11.0% |
| 2024/2025 | 11.5% |
| 2025/2026 | 12.0% |
SG contributions are payable to all employees earning at least $450 per month and if you are aged less than 18, you must also work more than 30 hours a week.
For more information, see SuperGuide article Your simple guide to Superannuation Guarantee (SG) contributions.
2. Award contributions
In some Employment Awards or Agreements, your employer may be required to make specified super contributions. These often include employees aged 18 and working less than 30 hours a week, or those aged 75 or older who are not eligible for SG contributions.
The amount of these super contributions depends on the particular Employment Award or Agreement certified by an industrial authority like the Fair Work Commission.
3. Additional employer contributions
These are contributions made by an employer above the compulsory amount required by the SG legislation or Employment Award. They are generally paid to employees of large companies as part of their salary package, or to some public sector employees.
4. Salary sacrifice
Salary sacrifice contributions are an agreement you make with your employer to pay part of your before-tax salary directly into your super account. At the start of the financial year, you decide how much you want your employer to pay into your super account each pay cycle before income tax on your salary or wages is deducted.
By making a salary sacrifice contribution, you are reducing your taxable income and potentially, how much tax you pay. This can be worthwhile if you earn over $37,001 or more a year, as instead of paying your higher marginal (or top) rate of tax on your salary or wages, you only pay 15% tax on your super contribution (if you earn less than $250,000).
Note: If your ‘combined income’ is over $250,000 in 2018/2019, a portion of your concessional contributions will be taxed at 30%).
Salary sacrifice contributions can be made up to age 65, but if you are aged between 65 and 74, you will need to pass a Work Test. These contributions cannot be paid after age 75.
Important note: Usually your employer pays the salary sacrifice amount from your salary or wages on top of the 9.5% SG contribution they are required by law to pay, but not always. It’s important to check how your employer is calculation any salary sacrifice payments before you agree to this type of contribution.
For more information, see SuperGuide article Salary sacrificing and super: A guide for employees and employers.
5. Personal contributions for which you claim a tax deduction
For many years, employees could not make this type of contribution, with only the self-employed who did not have an employer making super contributions on their behalf being eligible.
From 1 July 2017, most people (whether self-employed or not), are able to claim a full deduction for personal contributions they make into their super account until they reach the age of 74. If you are aged 65 to 74, however, you need to meet the requirements of a Work Test to make these contributions and claim a tax deduction.
These contributions are subject to eligibility criteria and must not exceed the concessional (before-tax) contributions cap (see earlier in the article).
If you wish to claim a tax deduction for a personal super contribution, you must complete the ATO’s Notice of intent to claim or vary a deduction for personal contributions form and submit it to your super fund before lodging your income tax return for the financial year.
For more information, see SuperGuide article Guide to tax-deductible superannuation contributions.
Non-concessional (after-tax) or personal contributions: 2 main types
Note: There is no 15% contributions tax payable on these contributions when they are added to your super account as you have already paid tax on the money. Your total non-concessional contributions must not exceed your annual limit (see earlier in the article). From 1 July 2017, if the balance of all your super accounts at the previous 30 June is greater than $1.6 million, you are not eligible to make any non-concessional (after-tax) contributions.
1. Personal contributions from your take home pay
These are contributions you choose to make from your after-tax salary or wages. You can’t claim a tax deduction for these contributions.
Personal contributions can be made regularly from your after-tax pay, or as a lump sum at any time through the year. You must have supplied your TFN to your super fund before it will accept personal contributions.
Your super fund can accept personal contributions if you are aged 65 and under, but if you are aged 65 to 74, you must pass a Work Test. Generally, you cannot make personal contributions once you reach age 75.
For more information, see SuperGuide article 2019/2020 guide to non-concessional contributions (after-tax super contributions).
2. Spouse contributions
If you are married or in a de facto relationship (including same-sex couples), you can make super contributions on behalf of your spouse. These contributions can be a tax-effective way to save for retirement, particularly if your spouse is only working part-time, or has a limited income.
To be eligible, you must both be Australian residents when the contribution is made and must not be living separately on a permanent basis. For your contribution to be accepted by your spouse’s super fund, your spouse must be gainfully employed if they are aged between 65 and 69. Contributions cannot be made if you spouse has reached age 70.
In addition, your spouse must not have exceed their non-concessional contributions cap in the year you make the contribution, or have exceeded their transfer balance cap in the prior financial year.
Spouse contribution income and offset amounts (2018/2019)
| Your spouse’s income | Tax offset you will receive for your contribution |
|---|---|
| Under $37,000 | 18% x any contribution amount up to $3,000. Full offset for $3,000 x 18% = $540 |
| $37,001 – $40,000 | Offset reduces for every $1 your spouse’s income is over $37,000 |
| $40,001 and over | Nil |
For more information, see SuperGuide article Contribution splitting: How to boost your spouse’s super
Other types of super contributions
1. Downsizer contribution
From 1 July 2018, if you are aged 65 or older and meet the eligibility requirements, you may be able to make a Downsizer contribution into your super account of up to $300,000 from the proceeds of selling your home. There is no Work Test for making these contributions and you do not need to be under age 75.
Note: The ATO does not classify Downsizer contributions as non-concessional (after-tax) contributions and they do not count towards your contributions caps (see earlier in the article).
These contributions can be made if your total super balance is over $1.6 million, however, they will count towards your transfer balance cap ($1.6 million in 2018/2019) when you move your super savings into the retirement phase.
For more information, see SuperGuide article Contributing to super by downsizing your home: 10-point guide
2. Government contributions into your super account: 2 main types
a. Co-contributions
The co-contribution scheme is designed to help Australians build their retirement account balance by providing a matching amount from the government for super contributions you make yourself.
The scheme aims to boost the retirement savings of low and middle income earners who make personal (after-tax) contributions into their super account, with the actual amount you receive depending on your income and the size of your personal super contribution.
In the 2018/2019 financial year, if you pass several qualifying tests and earn less than $52,697, the maximum co-contribution you can receive is $500 and the minimum amount is $20.
The ATO calculates if you are eligible for a co?contribution payment and pays the amount directly into your super account. You must have provided your super fund with your tax file number (TFN) to receive a co-contribution payment.
For more information, see SuperGuide article Gaining from the government: How you can score a co-contribution freebie.
b. Low income super tax offset (LISTO)
LISTO contribution payments into your super account are designed to ensure low income earners don’t pay more tax on their super contributions than their take home pay. These payments of up to $500 made into your super account by the ATO are a refund of part of the 15% contributions tax you paid on your concessional (before-tax) contributions into your super account.
If you earn less than $37,000 a year, you may qualify for a LISTO payment into your super account. Although LISTO payments are a contribution into your super account, they are not made by you, but by the ATO instead.
For more information, see SuperGuide article Superannuation tax refund: 10 things to know about LISTO.
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