Nurturing your nest egg

The current rate of compulsory Superannuation Guarantee (SG) is due to increase to 10% in July 2021. It has been frozen at 9.5% since July 2014 and there have been many arguments for and against increasing SG contributions from the current rate of 9.5% to 12%.

The SG rate is set to reach 12% by July 2025 through yearly increases of 0.5%. The government is still debating this increase with a decision to be made closer to mid-year.

If we take a moment to look at the statistics, the median super account balance for males of retirement age (between 55-64) was $183,000, whereas females of the same age had much less at $118,600. The averages were $332,700 and $245,100 respectively. These figures fall well short of the $545,000 needed for a comfortable retirement according to the ASFA Retirement Standard for a single person*.

Clearly, an increase to compulsory super will help Australians add to their retirement nest egg, which should lead to a more comfortable retirement. A small increase may not sound like much, but over time it could have a large impact on your retirement savings and in turn the quality of your retirement.

You may have heard Australia’s retirement income system referred to as a ‘three-pillar system’. In retirement, your income may come from a single pillar or a combination of these pillars. The three pillars are:

1. The Age Pension – this aims to ensure that a basic standard of living is met in retirement, it also protects

individuals who outlive their retirement savings.

2. SG – these are your compulsory retirement savings which are accumulated inside a concessionally-taxed super environment. These savings aim to help achieve a standard of retirement above that which could be achieved with the Age Pension alone.

3. Voluntary savings – these are your savings both inside and outside of super. This pillar aims to give individuals a standard of living above what could be achieved with SG alone. There are some incentives to make voluntary savings attractive, including:

■ entering into a salary sacrifice arrangement with your employer (where you choose to have some of your before-tax income paid into your super). Salary sacrificed contributions are not subject to pay as you go (PAYG) tax^;

■ personal tax deductible contributions made to your super from your after tax income~;

■ a maximum tax rate of 15% on investment income; and

■ discounted capital gains for assets held longer than 12 months (tax reduced to 10%).

While some retirees will rely substantially on the Age Pension, others will have looked to have substantially boosted their superannuation balances by making additional contributions throughout their working years.

A proactive approach towards your retirement planning is vital if you want a comfortable retirement lifestyle and it’s never too early to take stock of your super.

Here are some tips to get you started:

■ Make sure that your SG contributions are being paid to your chosen super fund. You can check this with your super provider, either online or call them. Your employer should be paying your SG contributions quarterly at a minimum, but many employers will pay your contributions monthly.

■ Understand the fees you are paying. You can check your fees on the last statement you received from your super fund. High fees can significantly reduce investment returns over the long term, leaving you to work longer or contribute more to your super. Fees are complex, but that’s because there are so many components, all of which you should understand.

■ Review your investment options and make sure that they are right for you.

■ Find any lost or unclaimed super, you can do this easily by logging into your MyGov account.

■ If you have multiple super accounts, consider consolidating. It’s an easy way to save fees and potentially increase returns. Remember to take into account any insurance which may be linked to your accounts and consider obtaining financial advice.

Source: Allan Gray

* ASFA Superannuation Statistics December 2020.

^ Salary sacrifice contributions are subject to 15% tax in your chosen super fund. Salary sacrifice contributions count towards your concessional contributions cap and include the regular super guarantee contributions (9.5% of your salary) made by your employer, you should consider this and whether you will exceed your cap before making a contribution.

~ Personal tax deductible contributions to super count towards your concessional contributions cap and include the regular super guarantee contributions (9.5% of your salary) made by your employer, you should consider this and whether you will exceed your cap before making a contribution.