Types of Superannuation Contributions
Superannuation (super) is an essential part of preparing for retirement in Australia. Understanding the various types of contributions that can be made is key to maximising your super balance and securing a comfortable future. This guide covers every type of super contribution, providing insights into how each works and the benefits they can offer.
1. Concessional Contributions (Before-Tax Contributions)
Employer Contributions:
Employers are legally required to contribute a percentage of an employee’s earnings to their superannuation. As of the 2024/25 financial year, the Superannuation Guarantee (SG) rate is 11.5%, increasing to 12% in FY2025/26. These contributions are made automatically, ensuring consistent growth over your working life. Always check your super statements to confirm correct contributions.
Salary Sacrifice and Tax-Deductible Contributions:
Concessional contributions include employer contributions (SG), salary sacrifice, and personal contributions where a tax deduction is claimed. These are taxed at a concessional rate of 15%.
Contribution Cap and Additional Tax:
The annual cap for concessional contributions is $30,000. Contributions exceeding this cap are taxed at your marginal tax rate, plus an additional charge. Additionally, if your income and reportable super contributions exceed $250,000, an extra 15% tax applies to the portion over this threshold.
2. Non-Concessional Contributions (Voluntary)
Boost Your Super Balance:
In addition to employer contributions, individuals can make personal contributions from their after-tax income to increase their retirement savings. These contributions are especially valuable if you want to reach your retirement goals faster.
No Tax in the Fund:
Non-concessional contributions are made from your after-tax income and are not taxed within your super fund. These contributions are subject to a higher annual cap of $120,000 or $360,000 over three years under the bring-forward rule for individuals under 75.
Great for High-Income Earners:
Non-concessional contributions are particularly useful for those who have already maximised their concessional contributions and want to grow their super faster. It’s important to be aware of the total super balance threshold (currently $1.9m), which limits who can make non-concessional contributions.
3. Salary Sacrifice Contributions
Pre-Tax Savings:
Salary sacrifice is an arrangement between you and your employer, where you agree to forgo a portion of your salary in exchange for an equivalent super contribution. These contributions are taken from your pre-tax income and are taxed at just 15% (or 30% for high-income earners), which is generally lower than most people's marginal tax rate.
Tax-Effective Retirement Strategy:
Salary sacrificing is a popular strategy for reducing taxable income and boosting super. It’s important to monitor your concessional contributions (which include salary sacrifice) to ensure they don’t exceed the annual cap of $30,000, as excess contributions are taxed at a higher rate.
4. Government Co-Contributions
Matched Contributions for Low-Income Earners:
If your income is below $60,400 in the 2024-25 financial year and you make after-tax contributions to your super, the government may match your contribution with a co-contribution of up to $500. The amount the government contributes depends on your income and how much you’ve added to your super.
Incentivising Super Savings:
This scheme is particularly beneficial for those on lower incomes, offering an incentive to save for retirement and grow their super balance.
5. Spouse Contributions
Help Your Spouse Save for Retirement:
If your spouse is earning less than $40,000 per year or not working, you can contribute to their super on their behalf. By doing this, you may be eligible for a tax offset of up to $540. The maximum offset is available when your spouse earns $37,000 or less, with the offset phasing out at $40,000.
Boost Both Partners’ Super:
This contribution type is an excellent way for couples to ensure both partners are financially secure in retirement. It’s particularly useful when one partner takes time off work, for example, for caregiving or family responsibilities.
6. Downsizer Contributions
Home Sale for Retirement Savings:
If you are aged 55 or older and you sell your home, you can contribute up to $300,000 per person (or $600,000 per couple) from the proceeds of the sale into your super. Downsizer contributions are an excellent way to boost your super with funds from selling a home, without affecting your contribution caps.
No Work Test Required:
Unlike other contributions, the downsizer contribution doesn’t require you to meet a work test, making it a great option for older Australians who are retired or no longer working.
7. First Home Super Saver Scheme (FHSSS) Contributions
Save for a First Home:
The FHSSS allows first-time home buyers to make voluntary contributions to their super, which can later be withdrawn to use as part of a home deposit. You can contribute up to $15,000 per year, with a maximum of $50,000 (or $100,000 for couples) that can be withdrawn.
Tax Benefits and Savings Discipline:
The scheme offers tax benefits, as contributions are taxed at the concessional rate (15%) rather than your marginal rate, and the earnings on these contributions are taxed at a lower rate. This allows individuals to save for a home in a tax-effective and disciplined way.
8. Low Income Superannuation Tax Offset (LISTO)
Tax Refund for Low-Income Earners:
The Low Income Superannuation Tax Offset (LISTO) is a government initiative that provides a refund of up to $500 on the tax paid on concessional contributions for individuals earning less than $37,000 per year.
Automatic Refund:
This refund is automatically applied to your super account, helping to ensure that low-income earners are not disproportionately taxed on their super contributions.
9. Carry-Forward Contributions
Carry Forward Unused Concessional Cap:
If you haven’t used your full concessional contributions cap in previous years, you can carry forward the unused portion for up to five years, provided your total super balance is less than $500,000.
Ideal for Irregular Income:
This contribution type is ideal for individuals with fluctuating incomes or those who wish to make larger contributions in certain years to catch up on their super.
Understanding the various types of superannuation contributions is crucial for making informed financial decisions and building a robust retirement strategy. Each contribution type offers different benefits, tax advantages, and flexibility, allowing individuals to tailor their approach based on their financial circumstances and goals. Whether you’re looking to boost your super, save for a first home, or take advantage of government incentives, there’s a super contribution strategy that can work for you.
To optimise your super strategy, it's always a good idea to seek professional financial advice tailored to your personal circumstances. Arrow Private Wealth can help you navigate the complexities of superannuation and ensure you’re making the most of every contribution opportunity.
General Advice Warning:
Any general advice on this page does not take account of your personal objectives, financial situation and needs, and because of that, you should, before acting on the advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. Information contained on this page was correct at the time of posting.