Superannuations Strategies in the Face of Tax Reform

Written by Supervision Group

Supervision Group has a highly experienced team of professionals with one goal, to improve how you interact with your Business, Super, Personal Finances and Investments to grow your wealth. We know what it takes to grow and thrive in today’s fast-paced economy.

20 June 2024

The latest changes to personal tax rates (feature article) highlights the need for a discussion on how Australia will maintain the incentive for lower-income earners to contribute more to Superannuation. In the 2025 Financial Year, anyone earning under $61,400 will not receive any tax benefits by sacrificing pre-tax money into Superannuation. They can still contribute after tax money into Superannuation with zero tax implications, but without a tax incentive many will not want to “lock away” money into Superannuation especially if the timeframe to retirement is a long way off.

Most people start out in their careers with lower incomes and less capacity to contribute more into Superannuation. They have many more expenses earlier in life (mortgages, school fees for kids, student debt, cars) that makes it increasingly difficult to add more to superannuation. The paradox is that if you do front load your contributions, outcomes are radically better due to the impact of time and compound interest. A person contributing small amounts early in life will outperform people that try to catch up with larger contributions later in life. Whilst Superannuation Guarantees will reach 12% in the future, those with lower annual incomes will need to boost their contributions if they want to create larger Superannuation balances and have less reliance on the Government in retirement.

Lawmakers provide lower income earners with co-contributions which practically repays you for tax that you have paid on concessional contributions. It requires an after-tax contribution. Unfortunately, over time, the incentive and thresholds have been reduced to the point that the lure of $500 is not worth the effort. With budget constraints, the Government may not be able to make any changes to the current co contribution incentives. Reducing the tax rate inside of superannuation from 15% to 10% for lower income earners would also cost the Government too much to implement.

So, what can you do to help family members to build their Superannuation early in life? Putting a plan in place to contribute to your children’s or grandchildren’s Superannuation account may lead to better financial outcomes than providing them money for immediate personal expenses such as holidays, cars, houses etc. This is because Superannuation has a long-time horizon for the ultimate pay off and contributing early means that less is required now to achieve the same result in the future. If you think that this financial assistance for your children or grandchildren would be of advantage to you, please reach out to your financial adviser or Supervision for some guidance.

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