Super: Vita Palestrant
Make the most of the budget changes to set yourself up for a better retirement
Every new financial year kicks off with a raft of super changes. If you want to maximise your savings in a tax-effective way you need to keep abreast of these developments. Your super balance will be all the better for it.
Colin Lewis, head of strategic advice at Fitzpatricks Private Wealth, says July is a good month to “put your house in order” given the rise in the super guarantee (SG) from 9.5% to 10% and in the concessional contribution cap from $25,000 to $27,500.
“People who are salary and wage earners, who are making voluntary contributions above their employer’s contribution, may want to revisit the amount they salary sacrifice to increase it.”
Lewis says for high income earners, the SG is usually incorporated into their salary package. “But for low income earners, it’s actually going to be 0.5% super. If the government had blocked it, low wage earners would have been impacted by it. Wage growth is not there. So for low income wage earners this is a pay rise.”
Although the government announced it would scrap the $450 a month threshold under which employers do not have to pay employees the SG, low paid workers will have to wait until next July to get super on every dollar they earn.
The cap on non-concessional (aftertax) contributions has also gone up, from $100,000 to $110,000, “which means that you may be able to contribute $330,000 rather than $300,000 with the bring-forward rule”. But you need to check all eligibility criteria before making contributions.
The other important change relates to the transfer balance cap (TBC), which has gone up from $1.6 million to $1.7 million thanks to indexation. The TBC is the maximum amount you can have in a tax-free pension account.
“If someone has already utilised their full $1.6 million cap, they don’t get any increase. If they’ve never been in pension mode before July 1, their transfer balance cap goes to $1.7 million,” says Lewis.
Those who moved less than $1.6 million into an account-based pension before July 2021 will get an increase on their unused cap, based on a complicated formula.
“That is really the trickiest part of knowing what your personal TB cap is,” says Lewis. “The government announced they are going to have it on myGov accounts for people to know what it is. You can treat that as the source of all knowledge in terms of super.”
Independent financial adviser Nick Bruining, from Bruining Partners, also encourages people to log into the site to check how much super went into their account in 2020-21 to avoid exceeding concessional caps this financial year.
He points out that, legally, employers are only obliged to pay super – the SG plus any salary sacrifice contributions – 28 days after the quarter.
“The employer isn’t required to pay super contributions for the June quarter until July 28. So people won’t know exactly how much went in until after that date. If their boss pays it monthly then you are OK.”
Don’t stop at the super changes. Sometimes taking things for granted can be costly in terms of performance, risk and unnecessary fees.
Bruining says people need to look at the big picture. “Weighing up what you’ve got outside super and inside super is important. People ignore it, they don’t understand super, they view it as an investment. They don’t appreciate that the performance of the fund is ultimately determined by the underlying assets.
“Most will be looking at a return that’s been pretty good compared to this time last year. But it now affords them the opportunity to re-weight their portfolio to reflect the risk they are happy to take.
“If you are someone who’s getting towards retirement and you know you’ve had a cracking couple of years now, there’s nothing wrong with de-risking and backing off and perhaps shifting your focus from growth to safety.”
For younger super savers it’s a different situation. Over the long term, the highgrowth option, which is heavily concentrated in shares, will outperform the balanced option, which will in turn outperform the conservative option.
“Given you can’t touch it for 40 years, why wouldn’t you go in hard. Accept it’s going to rock and roll but you’ve got time on your side to recover any downturn,” says Bruining.
He also encourages fund members to check their life cover, especially as they get older.
“Now might be the time to perhaps bring the cover down if you’ve decided you’ve got enough resources there for your loved ones.
“We often see people leave that alone and one day they look at their statement and see that thousands of dollars a year are going out in life insurance premiums. When in fact if the house is fully paid off and the kids have all left home, is it really necessary considering how it’s eroding the retirement nest egg?”
Colin Lewis says unfortunately for many people, when it comes to super, it’s a case of out of sight, out of mind. “Take an interest in your super because it’s your own money. If you have the means to do it, the concessional tax treatment of it is very attractive though the downside is your money is locked away.”
To set up a myGov account go to ato.gov.au/General/Online-services/Create-yourmyGov-account-and-link-it-to-the-ATO.