Although there are no significant changes to superannuation rules as we enter this new financial year some of the limits have been indexed up due to inflation and the employer Super Guarantee rate is edging up as legislated several years ago.
The Super Guarantee (SG), the payment to super employers must make for their employees, has risen from 10.5 to 11 per cent. It is scheduled to go up to 11.5 per cent next year and 12 per cent from July 2025.
The higher payment rates will help all workers grow their retirement benefits faster but will obviously benefit younger employees the most.
Suppose a worker has an annual salary of $60,000. If their super fund earns 8 per cent per annum, and contributions are 10.5 per cent of that salary for 35 years the benefit will be $1,023,645. However if the contributions are 12 per cent, the end benefit will be $1,169,880. That’s an extra $146,235.
This illustration also shows what a difference a small amount of voluntary salary sacrifice contributions will make over the long term. Once young workers have purchased their home and reduced their mortgage a little, they should start sacrificing a small amount, perhaps $20 to $50 each payday.
Most workers are employed on a fixed salary plus SG super payments, but some are engaged on a total employment cost (TEC) basis that includes super. Workers employed on a TEC will now receive a small pay cut as their employer is obliged to pay more of their TEC into super.
The concessional super contribution limit (SG plus salary sacrifice) remains unchanged at $27,500. So people who have been salary sacrificing up to the maximum will need to reduce their sacrifice amount to prevent the higher SG payments pushing them over the limit and costing penalty tax.
In calculating the penalty the Tax Office assumes a high earning rate even if the super fund makes a loss, on which it then computes the penalty.
The maximum amount that people can have in super before voluntary contributions are prohibited has been indexed up from $1.7 million to $1.9 million. Once that is reached only SG contributions can continue. Salary sacrifice and lump sums are banned.
This is also the limit on the amount a person can use to start a tax-free retirement pension. Last July the rules changed to allow contributions up to age 75 so some people with extra money outside super may now be able to top up their pension.
However if a retiree has started a pension in an earlier year with a lesser amount they cannot increase it to the full $1.9 million. They can only use part of the extra limit, determined by a complex formula.