As superannuation balances plummeted off the back of stock market falls over the past year, is it possible to protect your retirement nest egg?

Australian super fund members have benefited from positive returns for years but in 2022, our pool of retirement savings shrunk for the first time in more than a decade. For those getting close to retirement, the negative superannuation returns have seen them work longer than they expected.

While this uncertainty has left people rattled, it’s important to understand the short-term fluctuations in market cycles and what they mean for your superannuation over the long term.

‘Super gets you exposure to investment markets around the world, particularly shares,’ says Mark Johnson, a partner of Lifestyle Wealth. ‘You can’t get your hands on it until you’re in your sixties, so it will grow over time. And since it can be managed for you, it’s effortless. It works in the background for you.’

Apart from watching investment returns rise and fall, there are handy steps HIA members can take to keep your super healthy – and make your retirement enjoyable.

According to Julie Dolan, KPMG Australia’s Head of SMSFs and Estate Planning, Enterprise, super is a perfect structure as it grows over time. ‘It’s compulsory saving in a tax-efficient compounding environment,’ she says.

Why it’s worth it

During your working years, your employer must pay 10.5 per cent (rising to 11 per cent for 2023–24) of your earnings into your super account. This is the super guarantee. It’s a safety net for your retirement. The age pension provides the most basic needs, so super will give you a more comfortable lifestyle.

The good news is that superannuation is one of your best investments. You’ll pay tax at a lower rate on the money your super investments earn. And you can improve your tax position by making extra payments into super.

‘Small amounts earlier on can make a huge long-term impact,’ Mark says. ‘And at any age, there are many options to add a little – or a lot – more.’

Julie Dolan agrees, explaining proactive planning is key to improve your super balance. ‘It’s important to seek specialist advice to get your goals in motion. This will keep you realigning what retirement looks like from your twenties to retirement time.’

As part of Housing’s two-part series, here are five ways to maximise your superannuation. While our more mature members may be studying intensely, these suggestions are also handy for younger workers.

1. Find your lost super

If you’ve ever changed your name, address or job, you may have lost track of some of your super. ‘It’s important to make sure you don’t have a lot of different funds everywhere because you may be paying multiple insurance premium fees,’ Mark says. ‘The best solution is to have it all in one spot.’

If you’ve ever changed your name, address or job, you may have lost track of some of your super. ‘It’s important to make sure you don’t have a lot of different funds everywhere because you may be paying multiple insurance premiums and fixed fees,’ Mark says. ‘The best solution is to have it all in one spot.’

Your lost super may be held by your super fund or by the Australian Taxation Office (ATO). For more information, visit ATO online.

2. Salary sacrifice

You can ask your employer to pay part of your pre-tax pay into your super account. This is known as salary sacrifice contributions. You benefit because you pay less tax while you boost your retirement savings. These contributions are taxed in the super fund at a maximum rate of 15 per cent, which is usually less than your marginal tax rate. There’s a limit to how much you can contribute. When you add up your employer and salary sacrificed contributions, they’re not to be over $27,500 for the 2022/23 financial year.

‘This is a great way to make some easy super savings early on,’ Julie says. ‘And if you do that over an extended period, it makes quite a big difference.’

She adds that you can factor in not only this year’s $27,500 limit, but also the carry-forward (also known as catch-up) contributions. If you haven’t used your concessional contribution cap in any year since 1 July 2018, you can make it up in one go or over a number of years. This means you could add a lot more into super than just $27,500, if you’re eligible.

3. Non-concessional contribution

You can also make personal contributions to your super from your money that has already been taxed at your normal tax rate. Known as non-concessional contributions, you can make up to $110,000 each financial year.

If you can afford it, making extra contributions is a great way to boost your retirement savings. The main advantage is to have more of your money inside the super system that can generate tax-free earnings in retirement. It’s important to remember you generally can’t touch these funds until retirement.

‘You may want to make this contribution when you have spare capital that isn’t needed to be put back into your business,’ Julie suggests. ‘Or you may have some spare cash, an inheritance or a windfall – this is a great time to put this money into your super.’

4. Spouse contribution splitting

When you’re busy running your own building business, your spouse may decide to take on a part- or full-time position. If your spouse earns a low or no income, you may be able to split your super contributions with them. ‘It’s a good way to top up your partner’s balance,’ Julie says. ‘It will depend on the eligibility criteria. In other words, you’re able to split up to 85 per cent of the concessional contributions made into your superannuation account within a financial year. That is provided your spouse is either aged lower than their superannuation preservation age or aged between their preservation age and 74 and not retired.’

5. Voluntary after-tax contribution

Who can resist a little financial help from the federal government? That’s what co-contributions are – extra cash paid into your super by the government. All you need to do is to make a personal contribution of your own. If you add $1000 to super from your own pocket, the maximum co-contribution is worth $500.

6. Low-income super tax offset

If you’re a young apprentice, this tax offset can be a real boost. If you earn $37,000 or less, you can get a superannuation tax offset of up to $500 per year. The good news is that you don’t need to do anything. The ATO will work out your eligibility and pay the money automatically into your super account.

Visit an adviser

As there are so many ways to give your super a real boost, it’s important to talk to a financial adviser. ‘Pre-planning is key whether you’re a young apprentice or a ready-to-retire CEO,’ Julie says. ‘By the time you’re in your late thirties, it’s worth looking at your super each financial year and revisiting plans for your retirement.’
Mark agrees: ‘At different stages of life, you need to determine your appropriate level of risk. Having someone coach you through each stage can make a big difference in the long term. Getting financial advice can help to bring the pieces of the puzzle together.’

For more information, visit ATO super or Money Smart.

First published on 14 March 2023