How new super changes will grow your nest egg
Looming changes to superannuation rules are set to enlarge the nest eggs of millions of Australians, prompting a call for savers to beef-up their knowledge.
Extra employer payments and increased limits on contributions begin on July 1, and this month's federal budget is likely to provide even more incentives.
There has been talk that the May 11 Budget could remove the $450 per month wage threshold for superannuation to be paid, which would benefit workers with part-time jobs.
Online investment adviser Stockspot's CEO, Chris Brycki, said there could be other Budget changes to benefit women.
"It's important for the government to look at ways to start closing the retirement savings gap between men and women," he said.
"One possible policy would involve paying super on paid parental leave."
While Budget initiatives remain uncertain, other super changes are locked in. Here are five of them.
1. EXTRA CASH FOR EMPLOYEES
Financial strategist Theo Marinis said the widest impact was from the legislated rise in compulsory employer contributions, known as the Superannuation Guarantee, from 9.5 per cent to 10 per cent.
Mr Marinis said humans had a "natural inertia" about their finances so the SG rise would help automatically increase their wealth.
"We don't take steps ourselves, and if it didn't happen we just wouldn't save," he said.
"You won't notice it but it will make a massive difference in 20 or 30 years' time."
SG payments are scheduled to climb to 12 per cent by 2025, and Industry Super Australia said this would add $170,000 to the retirement nest egg of an average 30-year-old couple.
2. HIGHER TAX-DEDUCTIBLE CONTRIBUTIONS
Australians can currently deposit up to $25,000 a year into their super and claim a tax deduction for it.
These are known as concessional contributions, and the cap rises to $27,500 on July 1.
Concessional contributions can be made at any time of the year. Salary sacrifice and employers' SG payments are included in the cap.
3. ANOTHER $10,000 TO DEPOSIT
Savers can also make after-tax deposits into their super, known as non-concessional contributions, of up to $100,000 each financial year.
From July 1 this rises to $110,000 a year, and the rules allow two years of future contributions to be brought forward - giving pre-retirees the ability to pump in $330,000 in one splash.
4. BIGGER TAX-FREE RETIREMENT PENSIONS
This change is for the wealthier retirees, who are currently able put up to $1.6 million each in a personal account based pension, which is tax-free for most people.
This cap rises to $1.7 million for new pensions on July 1.
5. INSURANCE AND FEES
More of a beware than a benefit, super fund members should check rising costs - particularly on life insurance in their super.
"Premiums are rising across the board and will continue to rise," Mr Marinis said.
"The regulator has squeezed them and COVID has had an impact as well, with a lot of mental health claims," he said.
Mr Marinis said people should review their cover.
Stockspot's Mr Brycki said they should also keep an eye on other fees.
"Consumers should not pay more than 1 per cent in total fees, because if they are, their returns will shrink over the long term," he said.
"Many young Aussies paying 1.5 per cent per year or more in super fees could pay over $226,000 in excess fees in their lifetime."
RISE IS WELCOME, BUT MORE EDUCATION NEEDED
Super fund member Mariam Mohammed, 27, is glad compulsory employer payments are rising soon, but says more should be done to encourage Australians to understand their super.
Ms Mohammed said the pandemic had forced millions of people to dip into their super, so taking measures to replenish that money was important.
"It would cost us a lot more in the future should an entire generation retire into poverty and homelessness," she said.
Ms Mohammed is co-founder of MoneyGirl, an organisation that aims to inspire financial independence among women.
"The super system currently relies almost entirely on forcing rules on individuals that they don't really understand," she said.
"I definitely did not understand what super was or where that money was going as a fresh migrant with a new job. So, for about seven years, my super sat in low-risk, low-return and high fee super because I didn't know any better."
Ms Mohammed said once she understood the system she was able to make choices.
"But most Australians will never have the chance to make that choice because they will never be given a chance to understand how the system works," she said.
"Currently, we don't teach people the basics of personal finance - really, at any point in life - but definitely not young enough," she said.
TIPS TO SUPERCHARGE YOUR SAVINGS
• Make sure you're in high-performing and low-fee fund. Fees can have a bigger impact that investment returns.
• Invest in higher growth, higher risk options if you have decades before retirement.
• Consider index fund options within your super, as these have the lowest fees and beat 90 per cent of funds.
• Pump as much money as you can into super as early as you can, to benefit from the massive long-term gains of compound interest.
• Get tax deductions by making concessional contributions, where tax payable is just 15 per cent rather than your marginal tax rate.
• Life insurance is important, but don't have too much if your wealth or life stage doesn't require it.
• Check if you can use government incentives such as the $500 co-contribution scheme or the spouse contribution that delivers tax rebates.
Source: Stockspot, Marinis Financial Group