Superannuation is one of Australia’s largest pools of personal savings and a powerful tool for your financial future. Understanding what it is and how it works is crucial. Recently, updates to superannuation came into effect on July 1, 2024, and they could impact your financial and retirement planning.
At First Financial, we specialise in adding certainty to your retirement with expert superannuation advice. We stay ahead of legislative changes to continuously refine our strategies, helping clients optimise their financial opportunities amid evolving laws.
Here’s what you need to know about key elements of wealth-building and the changes that have been introduced.
What are the changes effective July 1, 2024?
Here is a summary of all changes effective July 1, 2024:
- The superannuation guarantee will increase from 11% to 11.5%
- The concessional contribution cap will increase to $30,000.
- The non-concessional contribution cap will increase to $120,000.
- The ‘bring forward’ rules will be raised to $360,000, provided they were not activated before July 1, 2024.
- The Transfer Balance Cap (TBC) will stay at $1.9 million for individuals who did not commence a retirement income stream before July 1, 2023. A pro-rated TBC will apply to those who have.
How superannuation contributions work
“The best way to think of superannuation is like a bucket, and money gets into your bucket in one of two ways,” explains James Wrigley, Principal at First Financial. The first way is concessional contributions, including compulsory super payments from your employer, salary sacrifice, and voluntary contributions, which have a cap of $30,000. For employees, employer contributions count towards this cap.
The second source is personal after-tax contributions, known as non-concessional contributions. You can now contribute $120,000 annually or use the ‘bring forward’ rule to contribute up to $360,000 over three years, allowing you to accelerate savings during high-income years or when you have surplus funds.
Employer and pre-tax contributions are taxed at a concessional rate of 15%, while personal after-tax contributions enter the fund tax-free. However, if you earn over $250,000 for the financial year, Division 293 tax will increase the tax on pre-tax contributions to 30%.
About superannuation - the accumulation phase
The superannuation accumulation phase spans your working years when you actively contribute to building your retirement savings. During this time, contributions and investment earnings are taxed at lower rates, helping your money grow more efficiently. With the recent increase in contribution caps, you now have a greater chance to boost your retirement fund.
During the accumulation phase, making strategic investment choices tailored to your personal circumstances is crucial. Regularly review and adjust your strategy based on market conditions and your life stage.
It is essential to manage your contributions effectively, balancing concessional and non-concessional options for optimal tax benefits and growth. Strategies like salary sacrificing or additional personal contributions can accelerate wealth accumulation. For personalised advice and advanced approaches, consult your financial adviser.
About superannuation - the retirement phase
In the retirement phase, you can enjoy the benefits of your hard work. You can access your superannuation as either a lump sum or through regular pension payments. The transfer balance cap of $1.9 million is the maximum amount you can transfer into a tax-free retirement fund upon satisfying your retirement condition. Any remaining balance stays in the accumulation phase and will continue to be taxed at the rate of 10% or 15%, as mentioned above.
Once you turn 60, any superannuation you withdraw, whether as pension payments or lump sums, is tax-free. This means you can access your retirement funds without worrying about additional taxes, giving you more financial flexibility and security during your retirement years.
Effective management and planning are key to making your funds last and supporting your desired lifestyle. In your plans, consider life expectancy, healthcare needs and potential market volatility. Your financial adviser can help develop a strategy to ensure your financial stability and independence, helping you achieve your goals.
Talk to the superannuation experts
Superannuation is an essential component of retirement planning, but it can be complex to navigate alone. Whether you dream of retiring by the seaside, volunteering at your local animal shelter, or spending time with your grandchildren, you’ll need a strong financial foundation to enjoy it all stress-free.
At First Financial, our team of superannuation experts and financial advisers can help you make informed decisions. We stay current with legislation, including the most recent changes to superannuation in 2024, to offer you the best possible strategies.
Contact a friendly member of our team today to learn more about retirement planning, superannuation, or starting on the pathway to wealth.
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