Is your super where it needs to be for a comfortable retirement?

March 5, 2017

We all want to have a comfortable retirement and your superannuation retirement savings are there to help you achieve this.

If you’re an employee, your employer must contribute a percentage of your salary into superannuation. This amount is currently 9.5% and is set to increase to 12% by 1 July 2025. Will this amount alone provide you with a comfortable retirement? Or will you need to make additional contributions to ensure your balance is what it needs to be at the time you need it?

A study by the Association of Superannuation Funds of Australia Limited (ASFA) found that the average superannuation account balance at retirement in 2011-12 was $197,000 for men and $105,000 for women. However, the ASFA has calculated that the lump superannuation balance required for a comfortable retirement would be $510,000 for a couple and $430,000 for a single. In annual terms this equates to $58,444 for a couple and $42,569 for a single. The discrepancy is worrying when the Australian Age Pension currently only provides a maximum annual income of $33,716.80 for a couple and $22,365.20 for a single.

Taking a few steps now can make a huge difference to your superannuation balance in the future. But how much are you allowed to contribute into super? And what happens if you exceed the limits?

There are broadly 2 types of contributions into super – concessional and non-concessional. There are different contribution limits for each type and different consequences for breaching these limits.

Concessional Contributions

Concessional contributions are contributions from before tax income, or for which a tax deduction has been claimed. They include employer compulsory super guarantee payments, salary sacrifice and personal contributions that you claim as a tax deduction (this option is only available for self-employed people). These funds contributed are taxed at a flat rate of 15% when deposited into the fund.

  • The general annual limit for people up to age 49 on 30 June 2016 is $30,000 and $35,000 for people over 49 years.
  • However, due to legislative changes, from 1 July 2017 these annual limits will be reduced to $25,000 irrespective of age.

If you contribute above these limits in one financial year the excess contribution will be included in your assessable income and taxed at your marginal tax rate. You will incur an excess concessional contributions charge on the increase in your tax liability and the excess amount will also be counted towards your non-concessional contribution cap.

You have the option to withdraw up to 85% of the excess concessional contribution from your super to help pay the increased income tax liability. Any excess contributions that you withdraw will no longer count towards your non-concessional contributions cap.

Non-Concessional Contributions

Non-concessional contributions are contributions made from after tax income. They can include:

  • Contributions from your spouse
  • Personal contributions that you have not claimed a tax deduction
  • Contributions you or your employer made from your after tax income
  • Retirement benefits that you have withdrawn from your super fund and re-contributed into super
  • Most transfers from international super funds
  • Contributions exceeding your capital gains tax cap amount
  • Excess concessional contributions that you have elected not to release from your super fund.

As these funds have been taxed at your marginal tax rate prior to entering the fund, generally no tax is payable when they are deposited.

  • The non-concessional limit on 30 June 2016 is $180,000, however this will be reduced to $100,000 from 1 July 2017.

If you are 64 years or under on 1 July 2017 and contribute over $100,000 during one financial year, you can bring forward the next two years’ worth of non-concessional contributions. Therefore, for the 2017-2018 financial year you could contribute $300,000 over a three year period. This means that you could decide to contribute the whole amount within the first year, or contribute a larger amount in the first year and smaller amounts for the following two. If you are aged above 64 years this option is not available.

If you exceed the non-concessional contribution cap you have the option of withdrawing the excess contribution and earnings from super. The amount withdrawn will then be added to your taxable income and taxed at your marginal tax rate. If you decide not to withdraw the funds the excess will be taxed at the top marginal tax rate of 45% for the 2017-2018 financial year.

Is your super on target?

Many people don’t think much about super throughout their working lives. They have the mentality of ‘If I can’t touch it until I retire then why worry about it now?’ However, we all need to look at our super to ensure that it’s on target to provide us with the retirement lifestyle we desire. No one wants to reach retirement age and have to keep working because your super has let you down!

By undertaking a superannuation review, we can assess your current superannuation in terms of balance and investments and compare this against the amount you may require in retirement. If your current approach comes up short we can recommend strategies that may increase your balance to help get you back on track.

An update of the level and distribution of retirement savings, ASFA – March 2014

ASFA Retirement Standard, ASFA 2015 – Assuming 3.75% AWE as a deflator, investment earning rate of 7.00%, that the retiree/s draw down all of their capital and receive a part Age Pension. Please note that your personal needs may be higher or lower, depending on your circumstances.

Department of Human Services – May 2015

Concessional and Non-Concessional Contributions limits obtained from the Australian Taxation Office website – May 2015

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