When it comes to growing your super, there are plenty of tax-effective strategies you can use
The choice is yours when it comes to the amount you are willing to contribute in order to get a higher amount of pension when you retire. Placing your money in a superannuation fund is a good way to invest your financial resources so that you have your means for subsistence upon retirement. Whether you have recently joined the workforce and are looking for practical ways to boost your contribution, or you're nearing the end of your working days and want to maximise what you take out of your super, there are lots of steps you can take that will make a difference.
Strategies to increase your superannuation
- Deliberate increase of contribution. In addition to the compulsory 9.5% contribution your employer needs to pay into your super, you are also free to kick in additional contributions. This is usually done by paying from your after-tax salary therefore making your contribution tax free. If you already make personal contributions to your super fund, you can increase the amount you invest as your salary increases. Contribute additional money gradually to your fund so as not to abruptly sacrifice your salary. You can also increase your super by paying money from savings such as sale of assets, inheritance or unpaid leave when you resign or retire directly into your super fund.
- Be eligible for government co-contribution. The government encourages individuals to save and invest their money for retirement. Through the Government’s super co-contribution scheme, low and middle income earners making personal contribution to their super account are rewarded. You are eligible for this scheme if your income for the year is between $36,813 and $51,813. If your income is equal to $36,813 and you contribute $1,000, the Government will make the maximum co-contribution of $500 to your superannuation account. If you earn more than that, the Government contribution you receive will reduce progressively the higher your income. You can check you eligibility for this scheme by visiting the site http://www.ato.gov.au/super.
- Automatic salary deduction. Salary sacrifice is done by requesting your employer to automatically contribute a portion of your salary to your super fund. This option is done instead of personally paying your contribution from after-tax salary. This scheme has advantages since this can reduce your taxable income which in effect reduces the tax you pay. It may even increase your take home pay. But before you consider this scheme to grow your super fund, you should ask your employer if this method is available to you.
- Combine your superannuation into one fund. If you have worked several jobs, chances are you have contributed to various funds that you may have lost track of. You need to take time to contact all you super funds and consolidate your superannuation and realise savings at the same time. This is a wise management to grow super fund account from multiple sources of contributions and reduce fees and charges.
- Find unclaimed super. There are several lost super accounts out there. You can be one of the owners of those and you need to take it back. You can track down you unclaimed superannuation and consolidate it with your present account. In this way, you can increase your super and live a comfortable life upon retirement. You can contact the Australian Tax Office for assistance to help you locate your lost super accounts.
Contribution limits to be aware of
While growing your super fund account is a good idea, you need to know that the government has set contribution limits both for employer contribution (concessional) and member contribution (non-concessional).
- Concessional contributions - $25,000 p.a., regardless of age (trom July 1 2017)
- Non-concessional contributions - $100,000 (from July 1 2017)
Setting up an SMSF
Another growth strategy is to set up a self-managed super fund, or SMSF.
SMSFs or DIY super funds are small funds of no more than 4 people that are wholly managed by their members, who typically act as trustees of the fund. Having full control over the way the funds are invested means members are able to invest in growth options, which tend to be higher risk and higher return, as opposed the asset mix decided by their super fund.
Additionally, because there are no ongoing annual contribution fees, investment fees, switching fees or insurance premiums to pay, there’s the potential to save on outgoings towards your super fund as well.
However, SMSFs are not for everyone. Because of the costs involved in setting an SMSF up, as well as the ongoing fees required to maintain it, they tend to work out as a more cost-effective solution for people with larger super balances. It’s also important for members to have the time and inclination to manage the fund properly and attend to all the account-keeping and regulatory responsibilities that come along with it.
If you are an SMSF trustee (or interested in becoming one), another cost to consider is fees or charges that your bank, credit union or building society charge you to hold onto your funds, plus the interest rates they pay out on deposit amounts. For that reason, it’s a good idea to shop around to get a sense of the types of accounts available to SMSF trustees, and to compare their fees and rates. Use our table below to start comparing your options.
Compare SMSF accounts
It’s never too late to grow your super
Knowing the benefits of super funds, one should make a habit to make an effort to save for retirement. You always have the opportunity to supplement your super fund and enjoy its benefits when you retire. A little sacrifice that you make today will allow you to live a comfortable life when you grow old. While you are able to work and undertake a job, do it to prepare for the future which is uncertain. The best way to face your retirement is by doing the right financial decisions today.