While the extra cash boost is good news for any income earner, it can also lull you into a false sense of security, which could see you overlook another cash bonus on offer.
The fact is there are hundreds of thousands of Aussies who should be collecting a free $500 super boost, each and every year.
How to claim your free $500
Aussies earning under $58,445 per year can take advantage of the superannuation co-contribution scheme.
In a previous incarnation, the government used to tip $1 into the super account of anyone who contributed an extra dollar themselves, up to $1,000. Now that’s been halved to $0.50. But if you can tell me where else you can earn an instant 50 per cent return on money invested, you can take over this column!
Also by Nicole Pedersen-McKinnon:
The government’s co-contribution is now capped at $500 for a $1,000 after-tax contribution you make into your super. The full $500 is paid on incomes up to $43,445 while it phases down from there until it disappears at that $58,445 level.
You may well, though, be lamenting: “I don’t have a spare $1,000 at the moment.” But, when you think about it, you would only need to reserve $19.25 per week to receive that instant $500 boost to your retirement balance.
If you do this every year until you step off the work treadmill and head into retirement, you will probably be able to thank the government for an annual cruise.
The nitty-gritty of the free kick
Straight to the fast fine print: The co-contribution is open to people who have made an after-tax – technically called a non-concessional – contribution to their super fund in that tax year. Your employer’s contribution doesn’t count and neither do any salary sacrificed contributions paid in before tax.
You don’t need to apply. The Australian Taxation Office (ATO) will figure out your eligibility when you lodge your tax return. Just make sure your super fund lists your tax file number, so it can be paid into your account automatically in the months following.
You must be less than 71 years old at the end of the financial year, and you must be making money from employment of some description. You also need a super balance of less than $1.9 million in that tax year… just in case that’s relevant.
How much difference will it make to your future?
The co-contribution could make all the difference to your future. If you are on $90,000 a year, you should achieve the lump sum necessary to fund a comfortable retirement with 35 straight years of 12 per cent contributions, according to brand new figures from the Association of Superannuation Funds of Australia (ASFA).
However, mandatory super contributions are not even scheduled to increase to that level until the 2026/27 tax year. And the poor – literally – person who earns $65,000 a year would need that 12 per cent for 45 years.
Don’t forget that males typically, significantly, overtake females in terms of super balances from age 30, due to career breaks to raise kids. As such, ASFA is calling for paid parental leave to attract superannuation, as recommended by the government’s own Women’s Economic Equality Taskforce. It also wants a super baby bonus – a deposit of $5,000 into the superannuation account of women upon the birth of a child.
Ahead of any of those laudable changes, whether you are male or female, snaring an extra $500 a year, year-in, year-out, would be life changing on the leisurely side of it.