How to get a gift from the government

The co-contribution can provide low income earners with a valuable benefit

There’s free money up for grabs, folks. If you earn less than $36,813 this financial year the federal government will give you $500 for making an after-tax contribution of $1000 to your super. That’s a return of 50% right there, just for boosting your own retirement savings.

The co-contribution is aimed at helping low income earners lift their super balance. It gives them 50¢ for every after-tax dollar they contribute up to a maximum of $500 a year. Contribute $600 and $300 will be automatically deposited into your super account, once you’ve filed your tax return.

“If you are entitled to it you should really consider making the most of it because it’s very generous,” says certified financial planner Jason Andriessen at StatePlus.

Eligibility depends on two main tests, he says. “The first is you need to earn less than $36,813 to maximise the benefit. This comprises your assessable income, any reportable fringe benefits and your employer super contribution. The second is the 10% eligibility test: at least 10% of your income must come from employment, or carrying on a business, or a combination of both. So your income can’t be purely from investment earnings. You need to do some work to qualify for it.”

Between an annual income of $36,813 and $51,813, there may be some benefit at a reduced rate (see breakout).

The co-contribution is typically of greatest benefit to people starting out in their careers, those working part-time for family reasons, students doing casual jobs or pre-retirees wanting to keep working for longer on reduced hours.

“Certainly, in the early years of your career, how much you can contribute to super matters most. The more you contribute, the more you will have working for you during your career. It can make a big difference to your future super benefit.

“So if someone’s eligible and they can put $1000 into super, the government will contribute $500 and suddenly you have $1500 working in there for you. It’s very beneficial for the compounding effect.”

Andriessen doesn’t minimise the challenges. Super is locked up until retirement, which means younger workers also need to build savings outside super. “Things happen in life and you want a safety net to be accessible. People are made redundant, change jobs, get sick or take time out of work.”

At the other end of the spectrum are pre-retirees who may have wound back their work hours and find they are now eligible. Andriessen says they can derive several benefits by transitioning out of work this way.

“First of all, by working longer they are continuing to defer the drawdown phase and that can be a really smart thing to do because they are leaving more money in their super for longer.

“Second, it may mean they can now qualify for the maximum co-contribution. There’s the benefit of getting 50¢ in the $1, risk free, which you are not going to get anywhere else and you’re not going to have that problem of locking your money away because you will be able to access it once you retire. It creates a bit of a boost for you.”

Whether you are new parents working part-time on reduced pay, students in casual jobs or people just battling on low wages, it’s worth making the most of it, finances permitting.

“I don’t think people are aware of the benefit. It’s a little secret out there that people should make themselves aware of and take advantage of it,” says Andriessen.

Vita Palestrant was the editor of the Money section of The Sydney Morning Herald and The Age and has won several prestigious journalism awards here and overseas.