Money for jam – How additional super contributions can make a difference to your retirement

The Australian federal government is increasing its efforts to encourage Australians to save for their retirement, amid growing reliance on the public purse for welfare support, including the Age Pension.

According to the Association of Superannuation Funds of Australia (ASFA), the average super balance at retirement at December 2015, was $292,500 for men, $138,150 for women and $355,000 for households.¹

This information together with average life expectancy means the average Australian male will have as little as $17,205 per annum to live out their days in retirement, whereas women and couples will have as little as $5,756 and $14,791, respectively (disregarding compounding interest and investment performance), due to both gender pay disparity and life expectancy.² This is well below the Australian Securities and Investments Commission’s (ASIC) annual projections for a modest lifestyle, estimated to be $34,911 per annum for a couple and $24,270 for individuals.³

Accordingly, from 1 July 2017, the federal government pledged to contribute up to a maximum of $500.00 per year to the superannuation of eligible persons. Known as the low-income super contribution (LISC), the initiative is targeted at low-income earners earning $37,000 or less each year, assisting them to bolster their superannuation balance. The payment is automated for those who have provided their tax file number to their superannuation fund.

Similarly, the government’s super co-contribution scheme encourages both low and middle-income earners to make voluntary non-concessional (after-tax) contributions to their superannuation to boost their retirement savings.

Under the scheme, the federal government pays $0.50 for each dollar contributed after tax by members, up to a cap of $500 per year.^# While this may appear insignificant, over the course of the average working life of 40 years, a one-off $500 contribution can make a substantial difference to retirement savings – $19,067 to be precise.*

After factoring in the one-off payment of $1,000 members must contribute to receive the government co-contribution, compounded over 40 years, this figure equates to an additional $57,202 in retirement savings in the member’s pocket. Repeated every year for 40 years, this figure grows to more than $640,000 – that’s right, more than half a million dollars, and that’s not taking into account superannuation guarantee contributions from an employer.

Regardless of your income bracket, it’s difficult to argue against the merits of additional superannuation contributions when, for as little as the cost of a coffee each week, you can make a real difference to your retirement savings.

To discuss how voluntary non-concessional (after tax) contributions to your super can benefit you, contact Members Services on 1300 360 988.

^[1] ASFA: https://www.superannuation.asn.au/ArticleDocuments/359/ASFA_Super-account-balances_Dec2015.pdf.aspx
^[2] ABS: https://web.archive.org/web/20180909074119/http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/3302.0.55.001Main%20Features22014-2016?opendocument&tabname=Summary&prodno=3302.0.55.001&issue=2014-2016&num=&view=
^[3] ASIC: https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/super-contributions/how-much-is-enough
^[#] Conditions apply. See ato.gov.au for more details.
^[*] Figures based on 40-year (average adult working life) investment projection with compound capital growth of 9.53% per annum, which is the average performance of Australia’s 10 best performing funds in the three years to 30/11/17. Figures are illustrative only and do not account for individual fund performance. Prior fund performance is not a guarantee of future performance. Source: https://www.superratings.com.au/superratings-top-10/