Do You Know These Five Tips and Strategies to Bolster Super Savings in 2021?

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Summary

• Super funds managed to end 2020 on a brighter note, staging a rebound in November from the COVID-driven meltdown in February.
• Individuals can embrace some key tips and strategies to foster their superannuation savings in 2021.
• People can pick the strategy aligned with their individual’s financial situation/needs to foster their super savings.

Brushing aside COVID-19 headwinds, super funds exhibited a decent performance in 2020, with returns moving into positive territory. As the nation has marked entry on a new journey in 2021 with a blend of vaccine rollout and economic revival hopes, it appears to be the best time for Aussies to boost their super savings.

Generally deemed essential to living a comfortable retirement, super funds also emerged as a saviour for Aussies in surviving the coronavirus storm. The government’s early super withdrawal scheme enabled financially affected individuals to sail through the period of economic hardship.

Besides, individuals who remained invested in super funds during the pandemic saw super proving its worth once again despite virus-induced disruption. Super funds managed to end 2020 on a brighter note, staging a rebound in November from the COVID-driven meltdown in February.

Also Read: COVID-19 Impact: Around 0.9 Million Go For Early Superannuation Withdrawal

Overall, the pandemic trends substantiated the importance of investing in super funds. Given the scenario, it appears instrumental for Aussies to step up their game to ensure their nest egg at retirement is big enough to lead a cushy life.

Here are some key tips that can help individuals foster their superannuation savings in 2021:

1. Ponder on Salary Sacrifice Contributions

Making salary sacrifice contributions is one of the best ways to expand your super balance in a tax-effective manner. Salary sacrifice requires employees to forego a portion of their pre-tax salary in return for employers’ contribution to their super funds of a similar value.

Salary sacrifice contribution is made in addition to the amount an employer already pays an employee under the superannuation guarantee. Notably, the sacrificed salary is only taxed at a maximum rate of 15 per cent, which is generally less than the marginal tax rate.

Consequently, salary sacrificing into super does not reduce employees’ take-home pay while potentially increase their retirement savings and save taxes. Moreover, the before-tax contribution into super allows an individual to reap the rewards of compound returns over the long run.

2. Leverage the Benefit of Government Co-contributions

Low to middle-income earners in Australia are also eligible for a government co-contribution of up to A$500 per year if they make a contribution to super with their after-tax pay. Aussies can use this government’s co-contribution scheme to bolster their retirement savings.

Notably, the amount of co-contribution received by individuals under this scheme depends on their income and the amount they contribute to the super fund. Individuals are not required to apply for this scheme as the Australian Taxation Office (ATO) decides on the eligibility of a person when he/she lodges the tax return.

Moreover, people need to ensure that their super funds include their tax file number (TFN) for the automated payment of government co-contribution.

It is imperative to note that individuals need to make a personal contribution to their super account to avail the government co-contribution benefit. Besides, people under 65 years of age can make a personal after-tax contribution of up to A$300,000 over a three-year period, given their super balance is below A$1.6 million.

Related Read: The State of Superannuation Funds Amid the Accelerating Pandemic

3. Share the Love with Spouse Contribution

Aussies can further consider making a spouse contribution to their superannuation account (spouse’s) to enhance retirement savings. Individuals are entitled to a tax offset in Australia if they make a contribution to the super account on behalf of their spouse who is earning a low income, working part-time or not working currently.

People making after-tax contributions to their spouse’s super account can claim an 18 per cent tax offset from the ATO. The maximum tax offset provided by the ATO is A$540 in case individuals contribute a minimum of A$3,000 to the super fund and their partner’s annual income is below A$37,000. Remember, the spouse’s income above A$37,000 is eligible for a partial tax offset, while income above A$40,000 is not eligible at all.

4. Do Not Forget to Review Insurance Options

Most of the superannuation plans include insurance options like permanent and total disability cover, death cover and income protection for super members. Besides, premiums for certain insurance options can be lower inside super relative to outside.

To successfully harness the benefit of this cost-effective approach, individuals should closely review the insurance options and understand the ins and outs of insurance coverage. As the family requirements often change, one can check whether there is an option to raise the level of cover or not.

Furthermore, it is worth understanding that the amount and cost of insurance cover can change over time amid certain events like leaving an employer or an increase in age. These transitions often result in a change in the level of premium, impacting super balance.

5. Consider Consolidating Your Super

Australia is believed to have a million dollars’ worth of super funds lost and unclaimed. Individuals can steer clear of this situation by consolidating different super funds. Combining different funds into one can also help people keep track of their investments effortlessly and avert payments of multiple fees and charges.

However, one should consolidate their super funds with care, considering different factors like employer contributions, fees, tax implications and insurance cover. A sound comparison of risks, benefits and costs of various super funds needs to be undertaken before changing out of a super fund.

Although these tips and strategies can help Aussies in uplifting their retirement savings, one need not neglect that super systems are subject to change and are complex. Thus, people should opt for the strategy that suits their individual financial situation/needs after carrying out a comprehensive analysis.