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We all know its something we should be doing, but putting away a little extra for tomorrow is something that is easily put off as we struggle through our daily lives. 

When I talk to members they often tell me that they know they should have started making extra contributions to their super some time ago, but it all just seemed too hard. 

And they’re half right – like all things in super the earlier the better, though it’s never too late to start. However it’s not hard to take action – making extra contributions is as simple as arranging a payroll deduction with your employer or setting up a BPAY® payment with your online banking.

Let’s start by removing any confusion around making extra contributions to your super. There are two ways of making contributions to your super: 

  1. Before-tax (known as concessional contributions). These are contributions made from your before-tax salary (no surprise there) and include contributions made on your behalf by your employer, salary-sacrifice contributions that you ask your employer to pay from your before-tax income and any other contributions that you claim a tax deduction on (more on that later). 
  2. After-tax (known as non-concessional contributions). These are contributions you make from anywhere else, such as direct lump sum payments and BPAY® deductions you set up with your bank account. They come from money that has already had any applicable tax applied. 

Because there is no income tax paid on Before-tax contributions before they reach your super account, they are taxed at 15%* when they go into your account. For most people this is much lower than their marginal tax rate making this sort of contribution very tax effective. However, to ensure people don’t make too much of a good thing, there is a $25,000 annual limit for after-tax contributions which includes the contributions your employer is paying on your behalf. 

As After-tax contributions are sourced from monies that have already been taxed there is no additional tax applied to these contributions when they reach your account. There are also much more generous limits for these contributions of $100,000 per year.

Tax deduction for After-tax contributions 

If you’re making After-tax contributions you can, if you are eligible, claim them as a tax deduction as well which turns them into Before-tax contributions (such as salary sacrifice). They are then subject to the same tax treatment and limits. However there some steps you need to follow before you lodge your tax return if you want to claim these contributions as a tax deduction – you can find out more here. This reduces your taxable income and the amount of tax you need to pay. 

How much extra should I put away? 

That depends on what you can realistically afford – what can you go without today to put towards the retirement lifestyle you’re looking forward to tomorrow? But it doesn’t have to be a huge sacrifice – extra contributions no matter how small can make a big difference to your retirement. 

Some rules of thumb that seem to work for members I talk to are: 

  • Consider offsetting the cost of your insurance premiums that are deducted from your super account. Let’s face it, if you had the insurance cover provided outside you’d be paying the premiums directly from your current take home pay. 
  • 5% of your salary – close to half what your employer is paying. This seems to be a magic number that members can have deducted from their pay without much pain. 
  • The price of a cup of coffee a day – diverting it to salary sacrifice usually adds an extra $1,500+ to your super each year. 
  • A portion of your next pay increase. 
  • Whatever works for you. 

The key is to do something and we can help you work out if it’s enough to get to the retirement lifestyle you’re wanting – but it’s important to make a start as soon as you can so the magic of compounding returns can start working for you. 

Is that all there is to it? 

Pretty much – but there are also some special circumstances around the contribution caps that allow you to utilise “unused” portions from past years, additional co-contributions the Government will put in for you if you’re on a low income and even incentives for spouse contributions for some people.  

And if you’re over age 60 there is some magic that could happen where tax-free payments from your super can offset the impact of additional salary-sacrifice contributions. This has the potential to dramatically increase the net amount going to your super without any loss of take home pay – just by paying less tax. 




Don’t put it off again 

The key takeaway is that it’s not that hard to get started, and doing something provides much better outcome than doing nothing or pushing it down the track yet again. 

Actually now is a great time to start putting a little extra away into your super. While it might be counter-intuitive, the current market downturn means you are buying more investment for your dollar. Wouldn’t it have been nice if we could’ve stockpiled petrol while it was briefly under $1? The same applies to investments that have reduced in their price. 

My job and that of others in the Mercy Super team is to help you get the best possible outcome for your super. That’s the only reason we exist – so let’s get started on looking for smart ways to give your super a boost and set up a strategy that’s right for you. All you need to do is get in touch. 

Trish Symons

Financial Adviser, ADipFP

Trish Symons has been a qualified financial adviser since 2001. She delights in helping families to a better financial future as well as guiding retirees into the best possible solution for their retirement.

She specialises in personal advice that relates directly to your superannuation within Mercy Super including ensuring you have life insurance that is appropriate for your circumstances.

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® Registered to BPAY Pty Ltd ABN 69 079 137 518 

* If your taxable income is less than $250,000 per year, your super contributions are taxed at 15%. If you’re a high income earner (adjustable taxable income including salary sacrifice superannuation contributions more than $250,000 per year), you’ll pay 30% tax on super contributions. 

 The information provided is of a general nature only and does not take into account your individual financial situation, objectives or needs. Accordingly, before acting on the information, it is important that you consider the appropriate Product Disclosure Statement, available from mercysuper.com.au or by contacting us, having regard to your own particular situation.