Should more young Aussies top up their super?


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For Aussies in their 20s or 30s, a relatively small sacrifice could add hundreds of thousands of dollars to their balance at retirement

When 30-year-old Daniel Spencer started in a new role as a research analyst two and a half years ago he decided that he was immediately going to give himself a pay cut.

The reason was simple: he wanted to give his superannuation balance a shot in the arm beyond the contributions he would be receiving from his employer. So to do that, he began salary sacrificing 15% of his income into his super.


"I had just moved into a full-time role where I was earning a consistent salary and I felt like my super balance was quite low at the time - partially due to the fact that I had less consistent work previously. I realised that I needed to boost up that amount."

Spencer's logic was that if he started salary sacrificing from the get-go it wouldn't feel like a cost, and he wouldn't have time to get used to any reduction in his new income.

"If you take money away then, obviously, you'll notice that difference, so I feel like doing so either at the start of a role or after a pay increase reduces the extent to which you notice it affecting quality of life."

A recent survey conducted by Virgin Money Super found that many younger Australians around Spencer's age aren't as confident when it comes to their superannuation though.

The research revealed that 77% of people aged 18 to 35 felt a degree of fear that they weren't doing enough to maximise their super, while 83% weren't confident about the action they could take.

With cost of living pressures and other financial priorities, super won't necessarily be top of mind for many younger Australians. But for those who do have the means or interest, Virgin Money Super general manager, Christopher Sozou, says that early action can have a real impact over the long run.

"We know that every young Australian, irrespective of topic, always has some level of FOMO (fear of missing out), and that extends to super and the fear that they're not maximising this opportunity."

"Ultimately, the concept of super starts from the basic premise of sacrificing a little bit today for your future self. And so, not making the most out of your super today only hurts yourself in the future. So you can always be doing more in the confines of your current financial circumstances."

How you can contribute more to your super

By law, eligible workers in Australia will receive at least 10.5% of their earnings into their superannuation by way of employer contributions under the super guarantee - a minimum rate which will increase to 11% on July 1 this year and 12% by July 2025.

As Glen Hare, a financial adviser and co-founder of Fox & Hare Wealth explains though, there are two high-level options available to Australians wanting to make their own contributions to super though: concessional and non-concessional contributions.

"Concessional contributions are where you can make a contribution to your super and claim the associated tax deduction. Under the current cap you can contribute up to $27,500, which includes the contribution your employer is making. So if your employer contributes, say, $10,000, you can contribute an additional $17,500 and claim the associated tax deduction."

One way to do this is by making a personal post-tax contribution - for example, a one-off $10,000 contribution. Providing you stay under the cap, you would then be able to claim a deduction on that at tax time. An alternative is to do what Spencer did and enter into a salary sacrificing agreement with your employer (if that is available).

"Rather than getting $10,000 from your bank account and putting into your super and claiming it as a tax deduction, salary sacrifice is essentially where it goes into your super pre-tax. The net effect is broadly the same, except one goes in pre-tax and the other one is after-tax from your bank account which you then claim the tax deduction back on," Hare explains.

It's also possible to make non-concessional contributions where you don't claim a tax deduction. Hare says that while there can be advantages to these, making the most of concessional contributions tends to make more sense for his clients in their 20s, 30s and 40s who have competing priorities.

"Super is incredibly important, but people are still wanting to raise a family, buy a house and build wealth outside super when they're younger, so it is more the concessional contributions that we really look to focus on in those early years."

A $250,000 difference

So, what kind of an impact could making voluntary contributions above and beyond what your employer is contributing via the super guarantee have on your super nest egg come retirement? According to Hare, it could be substantial.

"If we took a 30-year-old earning $100,000 with a current super balance of $50,000, at age 67 they're super balance - and this assumes default fees and performance - would be $664,000. But if we look at the exact same scenario, except they salary sacrificed $100 per week, at age 67 their balance would be $913,000. That's an increase of $249,000 by salary sacrificing.

"That's big money, and it's because a 30-year-old has so much opportunity. And because they're putting this $100 into super pre-tax, the net effect to them is perhaps going to be $60-$70 less per week.

"Of course, it's important to acknowledge that there are certainly challenging and competing priorities, but if we can find $100 a week then we're looking at a quarter of a million dollars more at retirement."

That's just one scenario, and the figure will vary depending on a host of factors including your age, income, existing super balance, the fees you're charged and the returns you get. But you can have a look at the impact of adding more using this Industry Super calculator.

What do you need to consider first?

While boosting your super through extra contributions could be a beneficial move, Sozou encourages people to take a step back and ask themselves a few fundamental questions first.

"Before you think about additional contributions, get the basics right. Do you know where your super is and have you got more than one account? If you do, is that is that a deliberate strategy, or is it through apathy? Get the basics right and consolidate into a single account - one that makes sense for you.

"Does the way it's invested match your risk appetite? Is it invested in high growth, is it invested in low growth, and does that strategy match the risk that you're willing to take?

"Look at the insurance arrangements inside of your super. Are they the right arrangements for you and should you have particular insurance or not?"

According to Hare, it's also worth remembering that while topping up your super may be a tax-effective way to invest, people in their 20s and 30s might not be able to touch that money for decades.

"The government provides such considerable tax concessions because they want you to be self-reliant in retirement. So a downside is that you can't access funds in super until you do meet the conditions of release which, for most people, will be at retirement - so it is a long term play."

Getting started

When Spencer decided to take the leap and start salary sacrificing he found out that his company had actually never done it before.

"When I emailed them about it they weren't sure what I was trying to do, because it's a company that has only recently branched out into Australia. So it took a bit of back and forth to try and figure out who was the appropriate person to talk and which was the right form, but it worked out in the end."

Typically though, salary sacrificing should be as easy as asking your employer whether they offer it and then emailing the relevant HR or payroll department with your details. On the other hand, making a post-tax contribution can be done via a transfer to your existing superannuation fund.

For Spencer, it's a decision that he's ultimately glad he made though.

"I know that super is a pretty tax-efficient strategy to invest and I know that just having money in my savings account, especially with inflation at the moment, makes it really hard to have a return that means that my money is properly working for me. So feel like it has been a tax-efficient way to invest that has had a relatively limited impact on my quality of life."

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Tom Watson is a senior journalist at Money magazine, and one of the hosts of the Friends With Money podcast. He's previously worked as a journalist covering everything from property and consumer banking to financial technology. Tom has a Bachelor of Communication (Journalism) from the University of Technology, Sydney.
Brett Jones
February 24, 2023 1.36am

It's all fun and games til the government decides not to pay you, or the legacy dollar eventually becomes worthless. You'd have to be crazy to give more currency to the government than you need to.