Did you release your super early under the COVID-19 scheme? Here are some ways to supercharge your retirement savings now
by Verve Super
Almost $38 billion in super was released early to Australians during the first year of the COVID-19 pandemic. The funds were released to over 4.55 million people who applied under the government’s early release super scheme between April and December 2020. Interestingly, 44% of those who applied for the early release scheme were women, releasing almost $16 million from their accounts.
In most cases, Australians can’t access their super until they reach retirement age. But the early access scheme was rolled out to help those who were financially affected by COVID-19. It allowed folks to release up to $20,000 from their super and in many cases, access vital money that helped them to navigate the last few years.
If you were among those who withdrew money from your super under the COVID-19 early release scheme, you may now be wondering how you can supercharge your super to rebuild those savings for retirement. Keep reading for a few tips to help you get started.
Gather what’s yours
The ATO reported that there was almost $14 billion dollars of lost super in Australia, as of 30 June 2020. If you’ve ever switched jobs or changed your name or address during your working life, you may well have lost track of some of your superannuation along the way. Checking that you’ve been paid all the super you’re entitled to (in current or previous jobs) is really important. Super is typically tracked using your Tax File Number (TFN) and so any super fund accounts should appear in your MyGov account. Through your MyGov account you can consolidate all of your super accounts into the one fund of your choice. For more information, check out the ATO’s website.
Check your employer is making contributions
Generally, if you’re paid $450 or more (before tax) in a calendar month as an employee, your employer should be regularly paying you super on top of your wages. Note: this $450 cap will no longer apply as of July 2022, giving more part-time and lower-income earners access to super. Woohoo! If you’re not sure if you’re eligible, you can use the ATO’s handy tool to help. If you notice payments are missing, get in touch with your employer, even if you no longer work for them.
Tip! If you’re a Verve member who’s having trouble getting an employer to meet these payments, you can chat to our team to get help with navigating the conversation with your employer and/or contacting the ATO.
Consider salary sacrifice or personal contributions
Investigate starting a salary sacrifice arrangement with your employer. Salary sacrificing means that you arrange with your employer to have some of your before-tax wages paid into your super fund instead of to directly to you; reducing your take-home pay. These payments, called concessional contributions, are taxed at 15%. For most people, this will be lower than their marginal tax rate. You benefit because you pay less tax, and you boost your retirement savings. Remember, you won’t have access to this money until you reach your preservation age, and there’s a limit on how much you can contribute to your super each year – the combined total of your employer and salary sacrifice contributions must not be more than $27,500 per year.
If you have the means to do so, you can consider making personal super contributions to your super fund from your post-tax income, i.e., the money in your bank account. These payments are called non-concessional contributions because you have already paid tax on the money. You can make up to $110,000 in non-concessional contributions each year, but remember you won’t have access to this money until you reach your preservation age. You may be able to claim a tax deduction for your personal contributions. You can find more info on the ATO’s website here.
If you’re thinking about either of these options, consider seeking professional advice which takes into account your personal financial objectives, situation and needs.
Understand the benefits of compound interest
Compound interest is when the interest earned on your investment is then reinvested over time along with your original amount. Your super fund balance grows through any contributions put in, either by you or your employer. These contributions are invested, and returns are earned on your balance. That money earned grows your balance and continues to be invested by your fund. The process occurs repeatedly, continually accumulating over your lifetime, i.e., compounding.
Remember, returns aren’t always guaranteed, and superannuation is a long-term investment. Your account will also be subject to fees and other costs.
Exercise your right to choice
To stop the creation of multiple super accounts, the Government has introduced a system whereby your existing super fund is ‘stapled’ to you when you change jobs. This means that when you start a new job, your employer will pay SG contributions to the same fund you had at your last job, unless you take action to make a change. If you want to change the fund that’s ‘stapled’ to you, you may be eligible to ‘exercise choice of fund’ and tell your employer which fund to pay your contributions into. Download and fill out the ATO’s Superannuation Standard Choice Form, and provide it to your employer.
Things to check if you’re on a low income
If you’re earning less than $37,000 per year, when you lodge your tax return you may be eligible to receive a refund of up to $500 into your super account of the tax paid on your eligible concessional contributions. This is called the Low Income Super Tax Offset (LISTO) and it will be automatically applied to your account by the ATO.
You may also be able to take advantage of the government’s super co-contribution: if you earn below the set income threshold (for 2021/22 the threshold is $56,112, rising to $57,016 for 2022/23), and you make a personal contribution to your super account, when you lodge your tax return you may be eligible to receive up to $500 in a co-contribution from the government.
Your partner can split their super contributions with you
If you have a partner, you could consider arranging to have some of their super contributions split with you. This is another way to build your retirement savings while providing a tax offset to your partner, and – crucially – ensuring a more equal distribution of wealth later in life.
This blog is published by Verve Superannuation Pty Ltd (ABN 65 628 675 169, AFS Representative No. 001268903), which is a Corporate Authorised Representative of True Oak Investments Ltd (ABN 81 002 558 956, AFSL 238184), as the Sub-Promoter of Verve Super.
Verve Superannuation Pty Ltd and True Oak Investments Ltd are not licensed to provide personal financial advice. The information contained in this blog, including any financial guidance, is general in nature. You should consider seeking independent legal, financial, taxation or other advice to ensure that your financial decisions are suited to your unique circumstances.
You should also read the Product Disclosure Statement, Additional Information Booklet, Insurance Guide, Target Market Determination, and Financial Services Guide before making a decision to acquire, hold or continue to hold an interest in Verve Super. When considering financial returns, past performance is not indicative of future performance.