Should I top up my super before 30 June?

The Superannuation Guarantee (SG) is a compulsory contribution to super that employers must make to an employees superannuation fund. The current SG contribution rate is 9.5% of an employee’s salary. This contribution rate will increase to 10% from 1 July 2021.

In addition to receiving employer contributions, we are also able to make personal contributions to super, subject to meeting certain criteria, including being under the age 67, unless we meet a “work test”.

If self-employed, or a partner in a partnership, we will generally be responsible for making our own contributions to superannuation.

It has often been said, and quite reasonably so, that the base level of employer superannuation contributions will not, on their own, provide sufficient savings over a working life to generate an adequate income in retirement if seeking to enjoy a comfortable lifestyle.

This is where additional “voluntary” contributions come in.

The superannuation landscape is very accommodating in terms of allowing people to make additional contributions.

So, let us consider the types of voluntary contribution a person may make:

1. Concessional contributions

These include contributions made by an employer such as compulsory SG contributions and additional contributions made under a salary sacrifice arrangement.

Salary sacrificing involves an employee agreeing with their employer to forego part of their salary in return for their employer making additional contributions to super on their behalf.
An individual may also make personal tax deductible (concessional) contributions provided they are able to use the tax deduction to reduce their taxable income.

If intending to claim a tax deduction for personal contributions, a notice of intention to claim a tax deduction must be given to the super fund within a set period. Sadly, many people intending to claim a tax deduction are denied their deduction because the notice is not given in the prescribed manner.

Concessional contribution from all sources (i.e., employer and personal deductible) are capped at a maximum of $25,000 for the 2020-21 financial year.

In certain circumstances, the unused concessional contribution cap that has accrued since 1 July 2018 may be carried forward and may increase the concessional contributions that can be made in the current financial year.

2. Non-concessional contributions

Non-concessional contributions are contributions an individual makes for themselves or for their spouse. They are not tax deductible.

The cap on non-concessional contributions is currently $100,000 per year, however a person who was under 65 years of age at any time in the financial year may bring forward up to three year’s contributions and potentially contribute up to $300,000 in a single year.

However, the ability to make non-concessional contributions is restricted to people that have a total superannuation balance (the total of all money they have in super, calculated on the previous 30 June) of less than $1,600,000. If a person has a total superannuation balance of between $1,400,000 and $1,600,000, or if they have made contributions of more than $100,000 in either of the two previous financial years, the ability to make a non-concessional contribution may also be restricted.

3. Downsizer contributions

In certain circumstances, a person aged 65 or older may contribute up to $300,000 from the proceeds of the sale of their primary residence.

The ability to make a downsizer contribution is subject to meeting several criteria so if you are 65 or older and have recently, or are considering selling your main residence, it would be worth speaking with a financial planner to explore the opportunity to make additional contributions to super. Unlike other types of contributions, making downsizer contribution is not subject to an upper age limit.

So, should I top up my super before 30 June?

Like so many questions, the answer will be “it depends”.

It will depend on your personal circumstances and retirement intentions. Therefore, it is important to consider the following questions:

  1. How much super do I currently have?
  2. How much super do I need?
  3. How is my super invested?
  4. When do I plan to retire and start drawing down on my super?
  5. How long do I think my super will need to last?

These can be quite daunting questions to ask and seeking advice or guidance from a qualified financial planner rather than from your family, friends, the well-meaning next-door neighbour, or TV, radio or print journalists, may be in your best interest.