Shane: Hello. My name is Shane Hancock, and I am the Head of Member Products, Guidance and Advice at AustralianSuper. And welcome to our podcast, The moments that count. Before we start, it's important to note that the information discussed in this podcast is general only and doesn't take into account your needs or personal objectives. You should assess your own financial situations and needs. 

Today, this podcast is being recorded at our head office on the land of the Wurundjeri people of the Kulin Nation. I and AustralianSuper acknowledges the traditional custodians of country throughout Australia. We pay our respects to elders past and present, and extend that respect to all Aboriginal and Torres Strait Islander peoples.

AustralianSuper has the privilege of 3 million members, trusting us with their retirement savings. Quite often, AustralianSuper members will ask questions that are found through various channels. 

And mostly, those questions are relevant for many members. So we thought it would be great if we could share some of those questions and answers through this podcast. To help answer these questions, I'll be inviting a guest expert to join me on the podcast and today I'm very happy to be joined by Daihla McGinty, Regional Manager in our Member Education Team. Daihla, welcome!

Daihla: Thank you so much, excited to be here.

Shane: Great. So, today we want to cover off a really important area of contributions. Someone asked a couple of questions around superannuation contributions 'cause you are one of our resident experts. So what are the different types of contributions that a member can make to their superannuation?

Daihla: Really good question because there are lots of different ways you can make additional contributions to your super. And I think this confuses quite a lot of our members because they hear lots of different terms. But today, I think if we focus on maybe three ways to make contributions, including salary sacrifice, taking advantage of maybe making contributions to your spouse and also the government co-contribution.

So they are the sort of three that I focus on quite a lot when talking to members because they're quite easy ways to boost your super.

Shane: Okay, excellent. Let's go through those three. So, salary sacrifice, tell me what that is?

Daihla: Okay, so salary sacrifice, probably a lot of our members have heard about that. And how it actually works is, you go into an arrangement with your employer and you make a decision to sacrifice some of your pay, so rather than paying your marginal rate of tax, which if we think about the average Australian, that's earning $90,000 a year, their marginal rate of tax is 32.5%.

So if they sacrifice some of their money into their super, rather than paying that marginal rate, they only pay 15% contributions tax. So immediately that's a big saving and it's a good way, it's a bit of a set-and-forget. You set that up with your employer and it just ticks along.

Shane: Is there a maximum amount of money someone can contribute via salary sacrifice?

Daihla: There is. And this is where some of our members get caught out, because they hear this term of contribution limits and the current limit for before tax or they're also called concessional contributions is $27,500 per annum.

And with that limit, with salary sacrifice, you're also including employer contributions in that amount. So it's just really important for people to understand that that $27,500 a year, that concessional or before tax limit also includes what your employer is paying in. It's important to be aware of that.

Shane: So that combination of employer contributions and salary sacrifice is basically treated the same way from maximum contributions as well as the way it's taxed.

Daihla: 100%, yeah.

Shane: Excellent. And so the second lot of contributions you talked about earlier was spouse contributions.

Daihla: So spouse contributions are, I would say really underutilized and that's probably because people are not aware of the benefit, the taxation benefits attached to it. And where this could work really well is if you're a member of a couple and you have maybe one member of the couple that is earning a higher income, maybe the average, which is you know, the $90,000 a year.

And then you might have the other member of the couple which might be taking some time out of the workforce to you know maybe have some kids, have a bit of a study break, and maybe that member of the couple is earning less and if they're earning under $37,000 a year, the higher income earner spouse can make a $3,000 contribution to their account, they can make a lesser contribution, but $3,000 sounds a bit more generous and that spouse that's earning the higher income can actually then claim the tax offset of $540.

So that's straight off their tax bill, it's not a deduction, it's a really good benefit that can help top up that lower income earner's super. And as we know that women generally have a lot less money in their super and this is just a good way to boost it whilst they may be taking some time out of the workforce. But you don't have to just be a woman to do that.

Shane: Excellent. So, something else that we get asked about which has seen more fame, and I'll come back to government co-contributions, but on that fame of spouse contributions is contribution splitting which has a similar sort of benefit of increasing the balance of someone who might have various reasons why they're not earning superannuation. Can you touch on that a little bit?

Daihla: Sure can. And again I think super splitting is a strategy that a lot of people don't know about. And where this can work quite favourably is if you are looking to balance out super accounts between a couple or maybe one of the members of the couple have access to their super sooner and there is an opportunity for you to split up to 85% of your before-tax contributions with your spouse.

So, these are strategies that can really, especially in couple relationships, really can help balance out those super accounts and also may enable them to access their money sooner in retirement.

Shane: So, that 85%, can you just clarify about how that works? It doesn't come from their employer to their spouse, it goes into their super account, correct?

Daihla: Yeah, exactly. So let's say for example I'm going to be really generous and give my husband some of my super. What I could do is my total concessional contributions for the financial year, I can look to split 85% of those and move them into his super account and there's a form you can fill in to do that.

Shane: And that form is a standard form from your fund or the tax office?

Daihla: Exactly.

Shane: Okay, excellent. All right, going back to the third contribution type we've touched on at the beginning which was government co-contributions, tell us about that.

Daihla: Yes, and I love government co-contributions and how this works is it really focuses on the lower income earners. So if you maybe are taking a break out of work or maybe you're just working part time or like my son who's an apprentice, who complains all the time about earning very little income, and he doesn't pay rent, but he's complaining about the lack of income he's got.

So he's earning under $42,000 a year and he's popped $20 a week into his super. Now, he's gonna end up putting about a $1,000 into his super account on an after-tax basis. And because his income is on the lower side, it means that the government will give him a co-contribution of $500. So the benefit of that means that he's getting, for a $1,000 he's popping in, he's getting $500 as a top up.

Shane: Right, so the type of person that may take advantage of the co-contributions you've talked about, are low-income earners, or are there other people that might take advantage of this?

Daihla: Maybe you've returned to work or you're maybe doing some study or maybe you're easing back from working so many hours. You've sort of gone down to one day a week because you're getting closer to retirement. So it's really making sure that with any type of contribution, that you really have a look at what contributions are going to suit you best based on how much income you're earning.

Shane: Now, we're very well-known in the superannuation industry of using lots of jargon and you've done well to take some of those words out, but concessional and non-concessional contributions can be better described as before or after tax and you've talked a little bit about that. Can you just explain for our listeners the difference between a before and after-tax contribution?

Daihla: Yeah, this is another example of the multiple terms that you hear. But to put it really simply, the difference between concessional contributions and non-concessional contributions really come down to how those contributions are taxed. So for example, with concessional contributions, they are concessionally taxed.

Shane: So concessional being?

Daihla: Before tax. Yes, so they're concessionally taxed as they go into super so unlike paying your normal personal income tax rate, you're only taxed at 15% as opposed to non-concessional contributions or after tax, there is no contributions tax upon entry. And the reason for that is any money that you're putting in on a non-concessional or after-tax basis, is in your bank account and you would've paid tax at some point when receiving that money.

Shane: So last question, we've talked a little bit about or mostly about people making contributions from their own cashflow really, whether it'd be post-tax or pre-tax. Are there, in your experience as a previous financial planner and now in the education space, are there other trigger events in a person's life where they may make contributions to superannuation when there's ongoing or lump sums?

Daihla: Yeah, definitely. I do feel that most people consider making regular contributions because it's a bit easier to set up and sometimes that can happen when maybe your children have moved out of home and you've saved yourself $200 a week from your food bill which having two sons in their 20s, that's exactly me.

But also if you are in a position where maybe you sell an asset, you might sell an investment property and you might like to make a lump sum contribution or maybe you received some estate proceeds and that's also another way you could consider, "Do I want to add this to my super in a lump sum..."

Shane: Are there limits on those lump sums that someone could make?

Daihla: There are limits, but they are a lot more generous than that before-tax or concessional limit. So the limit on non-concessional or after-tax is a $110,000 per annum, but you do have the ability to utilize something called a bring-forward rule where you can use three years’ worth of contributions at once.

Shane: All right, in that situation you touched on, whether it was downsizing or inheritance or redundancy or something, you could actually make quite a significant contribution to super.

Daihla: Absolutely. And with downsizing, there is actually another incentive that doesn't count to any of the limits that we've spoken about, but the government have actually introduced the opportunity, if you do wish to downsize your family home and you've been in that home for at least 10 years, you can look to put in $300,000.

And that doesn't count towards any of those other limits we've just spoken about. So another way that you could top up your super.

Shane: Fantastic. Well, Daihla, I think you've taken some really complex parts of the superannuation contribution regime and simplified them really well for our listeners. Thank you so much for joining me. As I mentioned at the beginning, the information that you've just received is general advice only and doesn't take into account or consider your needs or personal circumstances.

If you would like more guidance or advice, contact AustralianSuper or your financial planner. Thanks again, Daihla.

Daihla: Pleasure.

Shane: Thank you for joining us today. If you're an AustralianSuper member and you would like to join us to share your story or have a question or topic you'd like us to cover, then click the link in our show notes to get in touch. If you've enjoyed this podcast, subscribe and share with your friends and family. See you next time.