Rather than debating whether to let members have access to their superannuation savings for other uses, discussion should focus on encouraging additional superannuation savings, says Michael Hutton, head of wealth management at HLB Mann Judd Sydney.
“At some point in their lives, most Australians should think about making additional contributions into their superannuation, and consider when is the right time to do so.
“It is generally recognised that relying on compulsory superannuation contributions alone will not provide for a comfortable retirement for most Australians.
“It is a great shame that the constant tinkering with the super regime, and uncertainty created by the government around what superannuation can be used for, only adds to the doubt many people have about whether it is worthwhile to maximise their super contributions.
“The simple message should be that superannuation remains the most tax-effective and most sound investment vehicle for saving for retirement, and generally speaking, most people should consider making additional contributions at some point in their lives.”
Mr Hutton said there is no set age for when to start contributing more into super, and it depends on each individual’s financial circumstances, or financial life stage. Some common triggers include:
Mortgage under control
Paying off non-deductible debt such as a mortgage should be a priority, but once this is under control, other opportunities can be considered, Mr Hutton says.
“As a general rule, once the mortgage on the family home represents less than 50 per cent of the home value, the time is right to consider some other wealth building strategies in conjunction with continuing to reduce the mortgage.
“But reducing the mortgage by making additional repayments should be the first priority before looking to other wealth creation strategies such as super.”
Salary over $80,000
Once a salary reaches $80,000 or above is a good time to make additional superannuation contributions, as there are significant tax benefits to salary sacrificing additional amounts into superannuation (up to pre-set limits), Mr Hutton says.
“These benefits increase the more a person earns. For example for a high-income earner with a salary of over $180,000 the tax benefit can be up to 34 per cent for additional amounts contributed to super.
Receiving a windfall such as an inheritance is another good time to consider making additional superannuation contributions.
“Many people will inherit money at some stage of their life and this is a good opportunity to put more into super.”
There are special superannuation tax concessions for small business owners that allow the proceeds from the sale of a business to be placed into super.
“Subject to some very strict rules, up to $500,000 from the sale of a business can be put into super, above the non-concessional contribution caps, which can significantly build the balance of a superannuation account,” Mr Hutton says.
“Unfortunately if contributions limits are not used in a financial year, they cannot be carried over into the next. Therefore plans to build super should not be left until just a few years before retirement.”
People still need to be very careful not to breach the contributions caps, despite the recent softening of the rules dealing with excess superannuation contributions.
These caps limit how much can be contributed into super each year and still access special tax concessions. For those under 50 years, the total annual concessional contribution limit is $30,000 (including the compulsory contribution of 9.5 per cent), while for those over 50 the limit is $35,000.
“In addition, there are limits on how much can be contributed into super from after-tax money each year. By taking advantage of what are called the non-concessional (after-tax) contribution limits of $180,000 per annum (or a maximum of $540,000 over three financial years), a couple would be able to place over $1 million between them into super at one time.
HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and a member of the HLB Mann Judd Australasian Association.
For more information please contact:
Mr Michael Hutton
Phone: 02 9020 4193