A little bit now, makes a big difference later

Do you want to contribute more to super?

Well, now you can! For the first time in five years, for people under 50, the caps that regulate the amount you can contribute to super (on a concessionally taxed basis) has increased. That is, if you are under 50 from 1 July 2014, you can contribute $30,000 a year to your super (up from $25,000). If you are 50 or over during 2014/15, you will be able to contribute up to $35,000 a year (from $25,000).

So, if you’re worried that your super guarantee (SG) contributions alone may not afford you the lifestyle you want in retirement, then why not start contributing more to your super? Depending on your age, you can contribute up to $10,000 more a year. Remember, your concessional contributions include both SG and salary sacrifice contributions and are taxed at the concessional rate of just 15 per cent compared to your marginal rate.

Note: If you earn more than $300,000 in taxable income, then the 30 per cent contribution tax rate may apply which could be as high as 45 per cent.

Summary — concessional contribution caps

Year Concessional contributions Non-concessional contributions
Under 50 50-59 60 and over
2013/14 $25,000 $25,000 $35,000 $150,000
2014/15 $30,000 $35,000 $35,000 $180,000 or $540,000 if eligible under bring forward rule

Case study — how Ann and Bob reap the benefits

Let’s have a look at how the new contribution limits help Ann and Bob save for their retirement.

Over the last five years, Ann (aged 40) and Bob (aged 50) have both been maximising their concessional contributions limits and contributing $25,000 (via both SG and salary sacrifice strategies) into their respective super funds.

Under the new rules, Ann can now contribute an extra $5,000 to her super each year and Bob can contribute an extra $10,000 to his super each year.

The following table shows the difference these additional contributions (non-indexed over 15 years) would make to their retirement nest egg.

$25,000 per annum $30,000 per annum (Ann) $35,000 per annum (Bob)
Accumulated superannuation benefit over 15 years* $462,011 $554,412 $616,815
Difference: $92,400 $184,804

*Assumes super earning rate of 6 per cent per annum, no fees and client is not classed as a high income earner with taxable income greater than $300,000.

As you can see, it’s a substantial amount — $92,400 for Ann and $184,804 for Bob.

There’s also another opportunity to contribute more to super. As the ‘non-concessional’ contribution cap is set at six times the standard concessional contribution cap, from 1 July 2014, this cap will also increase — up to $180,000 per year. And, if you’re aged 64 or younger, you may be eligible to bring forward the next two years of non-concessional contributions in 2014/15 — increasing the cap to $540k.

Non concessional contributions are after-tax contributions and include personal contributions to super for which you have not claimed a tax deduction.

If you’re considering contributing more to super, 1 July is the time to take action.

For more information, please speak to your local Bridges financial planner.

This information is based on our understanding of the current taxation and superannuation laws. It is current as at 10 May 2014.