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Understanding the Impact of Superannuation Changes in Australia
From July 1, Australian workers will see a boost in their retirement savings with the increase in compulsory superannuation contributions. The superannuation guarantee (SG) will rise from 11.5% to 12%, marking the final mandated increase in the employer contributions to workers’ super funds. This adjustment represents a significant opportunity for employees to enhance their retirement savings.
What Does the Increase Mean for Workers?
The increment, while just 0.5%, can dramatically affect individuals’ superannuation balances over time, particularly as it compounds annually. Financial adviser Jess Bell from Findex highlights that individuals earning around $70,000 could expect an additional $350 annually into their super due to this change. Over a span of 30 years, based on a 6% assumed rate of return, this could translate into a substantial $29,000 increase in final superannuation savings.
While this increased contribution won’t directly enhance immediate cash pay, it effectively boosts total compensation packages, which is something many employees may overlook. Bell advocates for individuals to use this opportunity to review their super funds, emphasising that neglecting this aspect could be counterproductive.
Conducting a Super Health Check
Bell advises workers to regularly assess their superannuation health, including examining investment strategies, fees, and insurance coverages. Investment choices should align with individual risk tolerance and personal financial situations. For those with a long-term investment horizon exceeding ten years, a higher risk exposure might be suitable compared to those nearing their retirement.
When evaluating superannuation options, employing comparison tools, such as the ATO’s “Your Super” tool, can be beneficial. This resource provides insights into fees and performance metrics of various super funds.
Additional Superannuation Changes
In addition to the increase in the SG, there are other important changes set to take effect on July 1:
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Super Contributions on Parental Leave Pay: Parents receiving government support will see super contributions added to their parental leave payments, effectively increasing their retirement savings by 12% of the government assistance.
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Increase in the Transfer Balance Cap: The cap for transferring funds into the retirement phase will rise from $1.9 million to $2 million, allowing individuals to hold more in tax-free earnings during retirement.
- Contribution Caps: The caps for concessional contributions remain at $30,000, with non-concessional contributions capped at $120,000 for this year.
Considerations for Personal Contributions
Bell suggests that making extra personal contributions to superannuation can significantly enhance retirement savings. Committing even a modest amount, like $50 weekly—which translates to about $36 from net pay—can yield considerable compounded returns over time.
Final Thoughts
These amendments to the superannuation landscape are pivotal for Australian workers. The increased contributions can significantly help secure a comfortable retirement. Jess Bell’s insights underscore the importance of proactive engagement with one’s superannuation, encouraging individuals to not only observe these changes but also take advantage of them to bolster their financial futures.
