Superannuation in Australia was formally introduced in 1992 with the Superannuation Guarantee (SG) scheme. The primary aim was to ensure that Australians save for their retirement, reducing the future reliance on the age pension. Before this, superannuation was largely available only to public sector employees and certain private sector employees. The SG scheme mandated that employers contribute a percentage of an employee's earnings into a super fund.

As of recent statistics, Australians at retiring age (65 and over) have varying amounts of superannuation saved:

The average super balance at retirement for men is approximately $270,000.

For women, it is significantly lower, around $157,000. These figures highlight the importance of starting super contributions early and considering additional voluntary contributions.

Pension Eligibility Age

The eligibility age for the age pension in Australia is gradually increasing. If you were born before July 1, 1952, you are already eligible for the age pension. For those born after this date, the pension eligibility age is rising incrementally:

Born between July 1, 1952, and December 31, 1953: Age 65.5

Born between January 1, 1954, and June 30, 1955: Age 66

Born between July 1, 1955, and December 31, 1956: Age 66.5

Born from January 1, 1957 onwards: Age 67

[1) Australian Bureau of Statistics (abs.gov.au)

In South Australia, the move to allow teachers to choose their super fund, rather than being restricted to Super SA, was a significant change. This reform, introduced in recent years, aimed to provide teachers with more flexibility and control over their retirement savings.

Pros of Choosing Your Super Fund:

Greater investment options

Potentially lower fees

Ability to consolidate multiple super accounts

Cons:

Requires more personal research and management

Risk of choosing a poorly performing fund

Voluntary contributions to your super can significantly boost your retirement savings. These contributions can be made after-tax (non-concessional) or before-tax (concessional).

Contribution Caps:

Non-concessional contributions cap: $110,000 per year (2023-24)

Concessional contributions cap: $27,500 per year (2023-24)

Salary Sacrificing: Salary sacrificing involves directing a portion of your pre-tax salary into your super fund. This can reduce your taxable income and increase your retirement savings. However, it's essential to consider your overall financial situation and ensure it aligns with your long-term goals.

Superannuation contributions in Australia can be broadly classified into two categories: concessional and non-concessional contributions. Understanding the difference between these two types of contributions is essential for effective retirement planning.

Concessional Contributions

Concessional contributions are made into your superannuation fund before your income tax is applied. These contributions are taxed at a concessional (reduced) rate of 15% within the super fund.

Types of Concessional Contributions:

Employer Contributions: These include the mandatory Superannuation Guarantee (SG) contributions that your employer must make on your behalf (currently 11% of your ordinary time earnings as of 2023-24).

Salary Sacrifice Contributions: These are additional contributions you can arrange with your employer to be taken out of your pre-tax salary.

Personal Deductible Contributions: Contributions you make from your after-tax income and then claim as a tax deduction in your tax return.

Annual Cap:

The annual cap for concessional contributions is $27,500 for the 2023-24 financial year. Contributions above this cap may incur additional tax.

Benefits:

Reduces your taxable income if you salary sacrifice or make personal deductible contributions.

Taxed at 15% within the fund, which is often lower than your marginal tax rate.

Non-Concessional Contributions

Non-concessional contributions are made into your super fund from your after-tax income. These contributions are not taxed when they are deposited into your super fund, as you have already paid tax on this money at your marginal tax rate.

Types of Non-Concessional Contributions:

Voluntary Contributions: These are extra amounts you choose to contribute from your after-tax income.

Spouse Contributions: Contributions made by your spouse into your super fund.

Annual Cap:

The annual cap for non-concessional contributions is $110,000 for the 2023-24 financial year. If you're under 75, you may be able to bring forward up to three years' worth of contributions (i.e., $330,000) depending on your total super balance.

Benefits:

These contributions are not taxed when entering your super fund.

Boosts your super balance significantly, enhancing retirement savings.

Can be strategically used for those with excess after-tax income.

Key Differences

Taxation: Concessional contributions are taxed at 15% within the super fund, while non-concessional contributions are not taxed upon contribution as they come from after-tax income.

Contribution Caps: Concessional contributions have a lower annual cap ($27,500) compared to non-concessional contributions ($110,000).

Impact on Taxable Income: Concessional contributions can reduce your taxable income, potentially lowering your overall tax liability.

Conclusion

Both concessional and non-concessional contributions play an important role in building your superannuation savings. By understanding the differences and benefits of each, you can make informed decisions to optimize your retirement savings strategy.