Having superannuation can make a big difference in retirement, but how much is enough?

The current super contribution of 9% that employers must pay into a super fund is clearly not enough and will not meet the future retirement needs of Australian workers.

Increasing super contributions from 9% to 15% will help ensure workers have a comfortable retirement.

It is highly unlikely that the current government will legislate to increase employer contributions, but there are a number of ways that we can increase contributions.

Bargaining

ACTU policy calls on unions to bargain with employers for increased contributions. The goal of an additional 1 per cent to be achieved through bargaining by 2006 was set at ACTU Congress 2003.

Unions are currently working towards increasing employer contributions, often with mandatory or voluntary employee contributions. There have been numerous successful campaigns to secure this entitlement.

Salary sacrifice

Salary sacrifice is a process where the employer and employee agree to redirect a certain amount of an employee’s before-tax income into super.

For many workers there are tax advantages in making additional superannuation contributions from their before-tax income. It works like this.

An employee on $60,000 per annum pays 42 per cent tax on income over $58,000. If the employee contributes an additional $2,000 to super, reducing their salary to $58,000, the “sacrifice” is shown as an employer contribution and is taxed at 15 per cent, rather than 42 per cent.

While the tax benefit is reduced for workers on lower incomes, salary sacrifice can be a worthwhile strategy for those with incomes over $21,601.

Before making a decision about salary sacrifice, you should consider getting some financial advice as to whether this strategy is right for you.

Government Co-Contribution

Many workers make after-tax contributions to super. In some cases these are compulsory, in other cases these contributions are made voluntarily.

As part of the Federal Government’s co-contribution scheme, workers who make super contributions from their after tax income of up to $1000 in a financial year will receive an additional tax-free contribution into their super accounts.

Workers on incomes up to $28,000 per annum receive 150 per cent of their contribution; that is, if they contribute $1000 they will receive a co-contribution of $1500.

The co-contribution reduces by 5 cents for every $1 of income over $28,000 and cuts out at $58,000. An employee earning $35,000 per annum, for example, would receive $1150 for a $1000 contribution.

Employees on lower tax scales should consider whether the co-contribution is more beneficial than salary sacrifice.

For further information see:

ACTU Submission: Inquiry Into Improving The Super Savings Of People Under 40 - The most important determinant of the superannuation savings of people under age 40 is whether or not Australia makes the changes that are needed to the existing Retirement Income System for the benefit of all Australians. [September 7, 2005]

A New Vision For Super
Australian Taxation Office
Westpac-ASFA Retirement Living Standard

Superannution is an ongoing priority of the ACTU. Click on the link below to see the ACTU's new superannuation booklet, "Make sure Industry Super Funds are in all EBAs".

Large PDF files may take a long time to open, depending on the speed of your internet connection. If you have difficulty opening this PDF file, contact the ACTU Super Hotline on 1300 362 223 to order a hard copy.