Salary sacrifice contributions
Forgoing some salary now allows you to benefit from tax concessions and build your super for a better retirement. Voluntary contributions coming out of your pay are taxed at a flat 15% rather than your marginal tax rate. The earlier salary sacrifice contributions are made, the more your money works for you thanks to the power of compounding investment returns. Beware of the legislated caps – $30,000 per year for those under 50 and $35,000 per year for those over 50. Employer Superannuation Guarantee contributions are included within the caps. A great way to build your super over time!
Super fund members under age 65 can make after tax contributions of up to $180,000 per year. Post age 65 personal contributions can be made if the work test is met. Personal contributions are not taxed when the deposit is made, but become subject to superannuation rules and conditions of release once in the fund. The most common source of larger personal contributions is from the sale of real estate or the receipt of an inheritance.
The majority of fund members remain in the default option which with NGS Super is essentially a 70% growth and 30% defensive investment. However, there is a full palette of possible investments such as international and Australian shares, property, bonds, cash as well as a number of pre mixed options. A direct investment platform where you can pick your own shares, exchange traded funds or term deposits is also available. The standard rule is the longer the time frame (time to retirement), the more risk an investor can take on. The choice is yours!
Transition to retirement pension (Income Stream)
Fund members over age 60 can choose to access their super while they remain working. This strategy entails the establishment of a transition to retirement income stream (pension) account in addition to their superannuation account. Employers continue to pay contributions into the super account and members salary sacrifice extra contributions (subject to the caps) into it. By doing this, members can boost their super balance without reducing their take home pay and at retirement both accounts can be amalgamated into one income steam.
Insurance through super is a true member benefit. Many funds offer Death, Total and Permanent Disability, Income Protection (Salary Continuance) and Terminal Illness insurance. Members can customise their insurance (subject to acceptance by the insurer). For example, if your default Income Protection insurance covers a salary of up to $80,000 per year, and your salary is $92,000 per year, then $12,000 of salary is not insured. Similarly, if your fund has a 90 day waiting period before Income Protection payments begin, and your leave entitlements only allow for 20 days of leave, you will not be covered for the period between the expiry of your leave and the 90 day waiting period. A 30 day waiting period can be applied for, but premiums will be higher if accepted. With Death and TPD cover, it’s prudent to check your age based level of cover to see if it would be adequate to protect those you love. This may be particularly relevant to anyone taking out a large mortgage. Higher levels of life cover can be applied for and are subject to health evidence and acceptance by the insurer. Not an automatic right, but a true member benefit.
Over time these simple building blocks can help you to enjoy the glorious retirement you truly deserve!
Bernard O’Connor: NGS Super