At large: Ross Greenwood
There is a closing window of opportunity to turbocharge your super
Right now most Money readers need to think about their superannuation. I mean right now. This is urgent. It’s worth thousands of dollars to you if you get it right.
You have a unique opportunity to put in more money than you will be able to do in the future. If you can, take advantage of it. But be quick. You have a matter of weeks. The window is closing.
The first opportunity, for those aged over 50, is to salary sacrifice $35,000 this year into your super fund. Do it if you can. If you are on the 39% marginal tax rate (including Medicare) the difference in tax (15% for super versus 39% for you) is 24%. In other words you are $8400 better off by making the sacrifice this year.
From July 1, super changes from the last budget – they were debated vigorously in the last election campaign – mean that the maximum any person can put into super as an annual concessional contribution is $25,000. Say you are on $100,000 a year; $9500 is set aside by your employer via the superannuation guarantee charge. That will leave $15,500 that a person can salary sacrifice (and less if your employer pays insurance premiums for you … watch out for that one, otherwise you may over-fund your super account).
The next opportunity is non-concessional contributions. These are savings you have accumulated and already paid tax on. Until June 30 you are allowed to put $180,000 into your super. Or, if you have the money, three years’ worth – $540,000 – in one go. Each person in a couple can do it, so $1,080,000 can go into super.
I recognise many families will not have these sort of savings lying around to throw into their super fund but those who have recently gained an inheritance, sold a business (though there are different rules here) or downsized their home may certainly have the resources.
From July 1 this limit will be reduced to $100,000, so three years’ worth will be $300,000 per person. Now I want you to think about this, because there’s no doubt that while the attractions of super are being reduced, they still exist.
Let’s just take these sums. $1,080,000 returning, say, 6% after tax gives $64,800 a year in income. If in future you can con- tribute only $600,000, the income on that will be $36,000. I recognise a few things here. For example, you could technically put in another $600,000 per couple in three years.
For many, this sort of money is impossible. But do remember I’m taking an extreme example to show why, if you can, you should act now.
In other words, despite all the government changes and the disincentives to put money into super, it still has strong attractions. And though the very wealthy have had tax penalties and limits put in their way, understanding the rules and maximising contributions is still a vital method of raising your retirement income.
The biggest issue to confront many families who accumulate more assets is that they progressively lose the age pension when their assets – apart from the family home – hit $375,000 for a couple. That’s the point where they start to lose the age pension, up to the recently reduced upper limit of $821,500, where it goes altogether.
This amount includes most super (though, importantly, not super rolled over into allocated annuities or lifetime annuities). As an aside, for sharemarket investors the increasing popularity of lifetime annuities to create a regular income stream for at least part of families’ superannuation assets is the main reason the Challenger share price has jumped from $3.80 to $12.80 in five years. Challenger is the major issuer of lifetime annuities in Australia.
But trying to get as close to these limits as possible during your working life is important. After all, if you do not maximise the tax advantages, you will end up paying more to the government than you ought to or need to. And no person is obliged to do that.
Despite all the changes, super still has strong attractions