I was recently having a chat over coffee with a group of other Mums in business (truthfully I was doing a bit of market research) and I asked them if they felt that they had less super savings than they should have considering their ages and stages. A conversation then followed about the gender pay-gap, taking time out of the workforce to raise a family and finding yourself sole breadwinner due to either illness or relationship breakdown.
As a result, I have put together a quick list of things that you can do to address some of the super shortfall.
Check your fees
A small reduction in the percentage fees paid each year can make a big difference to how your money grows over time. In November 2017 there were some law changes that affect the way that superannuation funds report the fees charged for each investment option. Some funds that previously appeared to be low cost are no longer looking that way.
These fees may be called MER, ICR or Fund Manager expenses. You can usually find the detail on your super fund website under “Fees and Costs”, or you can give them a call. If you are paying too much, switching to a lower cost option could be a good move.
Consolidate your accounts
If you have multiple super funds, you are probably paying more fees than you need. Consolidating all your super into one can be a good idea. However , please check for insurances before you close any accounts and make sure that you replace any cover that you need.
Make sure you take enough investment risk
Superannuation is a long term investment. If you still have more than a decade to retirement and you are investing in mostly cash and deposits, you should consider increasing your risk exposure. Whilst there may be dips and bumps along the way, a well diversified, higher risk portfolio can be expected to provide greater returns over the long term (if you can keep your nerve).
Claim a tax deduction for a contribution
Since the beginning of the 2017/2018 financial year, the need to have at least 10% of your income from employment or business before you can claim a tax deduction for a personal super contribution has been removed. That means that non-working people can contribute and claim a tax deduction. (Though please remember that these contributions will be taxed at 15% within the super fund, so it still might be better to make an after tax contribution if your income is very low).
This new rule gives flexibility to those with uncertain or lumpy incomes. Salary sacrifice arrangements have to be made in advance where as a contribution under the new arrangement can be made at any time. It is dealt with at the end of year by means of notifying the super fund about the intent to claim a deduction (and claiming on your tax return).
Qualify for a Government Co-Contribution
If your annual income is below $36,813** (of which at least 10% is earned through employment or business) and you make an after tax contribution to super of $1,000, the government will top up your account with a co-contribution of $500. If $1,000 is too much to put in, you can contribute less and the co-contribution will be scaled back proportionally.
If you earn more than that but still less than $51,813** and contribute the $1,000, you will still get a co-contribution but it will be at a lower rate. It may still be worthwhile for some people.
Qualify for a Low Income Superannuation Tax Offset
If your annual income is below $37,000** (of which at least 10% is earned through employment or business) and you make a tax-deductible superannuation contribution, the government will refund the 15% tax that would normally be deducted from your super fund. The refund is up to $500 (so it would require a contribution of $3,334 to get the maximum amount).
The contribution can be made by salary sacrifice or by making a personal payment to the fund and then claiming as a deduction at tax time (if this is the case you must also tell the super fund that you are claiming a tax deduction for the contribution).
From July 2018, unused contribution caps will carry forward
Lastly, from 1st July 2018, if your super balance is less than $500K you will be able to carry forward unused super contribution cap amounts for up to 5 years. This is a great innovation for those whose income varies from year to year or who are going through a period of low income and/or high expenses. It will enable people to make larger than would normally be allowed contributions (and claim the related tax deductions) when the going is good.
This is especially relevant to women who take time from the workforce to care for their families (young and old) or who have lower income during the initial stages of building a new business.
If you need help with these or any other super strategies, we would be happy to chat.
**Please note that the thresholds given are for the 2017/2018 year.
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© Summation Strategies 2017.
Please note that all information provided is of a general nature and does not take into account your current financial situation, needs or objectives. Before acting on any of the information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. We recommend those seeking insurance or making an investment obtain financial advice specific to their situation and consider the Product Disclosure Statement prior to making any financial investment or insurance decision.