Act now to take advantage of end-of-year super limits
Almost half of Australians will not make additional contributions to their retirement accounts this financial year, despite significant tax benefits.
Nearly a quarter had not donated at the start of May but planned to do so before the end of the financial year, according to a survey of 1000 working Australians.
Of the 49 per cent who would not consider making an extra contribution, most said they could not afford it, but nearly a fifth said they did not know enough to take action.
“This is a gap we can close,” said Robert Francis, chief executive of Australian investment app Spaceship, which commissioned the survey.
For those who can, it makes sense to make a tax-deductible retirement contribution this financial year, experts say.
In fact, for Australians earning less than $62,488, the government will partially cover contributions up to $1,000 and add a co-payment of up to $500.
“We see a lot of people who qualify for this, they ask us questions and they don’t understand how it actually works,” said Josh Parisotto, chief engagement and growth officer at pension fund HESTA.
The Australian Taxation Office automatically deposits the top-up into eligible members’ retirement accounts.
HESTA’s calculations show how a relatively small deposit can turn into a significant amount by retirement age.
A 25-year-old member’s one-time contribution of $1,000 plus the government co-contribution of $500 would equal an extra $40,000 if they retired at age 65, assuming investment returns at historical averages.
Although Australians with higher incomes are not eligible for government subsidies, there are other reasons why they should make additional contributions.
That’s because their income is taxable at a rate of at least 32 percent (including Medicare tax), while their tax-deductible retirement contributions are taxed at 15 percent.
For example, a $1,000 superannuation top-up to an average income worker would typically result in their super account growing by $850 and their tax refund increasing by $320, and they would have been $170 better off had they not made the contribution.
This equates to a $5,100 benefit for those making the maximum annual pretax contribution of $30,000.
Craig Day, head of technical services at retirement provider Colonial First State, said those who haven’t fully used their $30,000 limit in previous years can take advantage of it with what are known as “carry-forward contributions.”
“This is a very popular strategy, so you can potentially ask for much more than $30,000,” he said.
But only people with a superannuation balance of less than $500,000 as of June 30 are eligible to make prospective contributions, Mr. Day said.
Mr Day advised that employees can check their personalized onward contribution limits on the ATO’s website after logging in via myGov.
While the financial year ends on Tuesday, Mr Day said pension funds had been cut a few days before for contributions to be applied for the 2025/26 financial year.
“Sometimes people get a little confused and think they can send the money into the fund before June 30, then they ask for a tax deduction,” he said.
Mr Day also advised members wishing to claim tax relief should submit a declaration form to their superannuation fund before submitting their tax return.
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