New research released by Colonial First State shows the importance of maximising concession caps, with younger Aussies having the greatest chance of increasing their wealth through superannuation. 

Analysis by the super provider showed that as a result of the changes, a 35-year-old will add over $86,000 to their retirement nest egg, but if they wish to maximise the new increase in concessional super contributions under the changes, they could make an extra $650,000.

This is due to the changes to superannuation saving rates. 

As of 1 July, the superannuation guarantee is legislated to increase from 9.5 per cent to 12 per cent in 0.5 percentage point increments each year, from 2021 through to 2025. 

In addition, the annual concessional contributions cap is also set to expand from $25,000 to $27,500, enabling Australians to put more into their super to further grow their retirement savings pool.

Colonial First State general manager Kelly Power said 1 July was a great opportunity for Australians to reset and reboot their retirement savings plans for their future.

“The boost for retirement balances is greatest for younger workers, thanks to the power of compounded investment returns,” she said.

“This is particularly true for those who withdrew their super early last year to deal with the pandemic and cover basic expenses, now is the time to start making up some lost ground by using these contributions to replenish their super and rebuild their nest eggs.”

Strategies to optimise super changes

It can be difficult to determine how much of your income to use to top up your nest egg each year, as it varies depending on your age, employment status and current financial situation.

However, Ms Power urged Australians to actively engage with their super and take positive steps to make sure they can live comfortably in retirement.

For millennials aged 18-39 years

Colonial First State highlighted how the younger generation will automatically benefit the most due to the benefits of compounding.

In order to get ahead, Ms Power believes younger Australians should focus on minimising debts, including credit cards and personal loans, which are charged at a higher rate.

However, she noted that in order to save for their financial future, younger Australians can accumulate large sums by making small contributions over their working life.

“For instance, an additional contribution of $20 a fortnight from pre-tax income by salary sacrificing, can mean an additional $25,000 at retirement,” Ms Power said.

“As it is pre-tax, this would only equate to a reduction of $13 from your after-tax income per fortnight.”

She also opined that those who withdrew super during the COVID-19 early release program should think about replenishing it outside of the super guarantee.

For wealth accumulators aged 40-49 years

The super provider highlighted that as Australians move into a latter phase of their working life, they should still focus on paying down debt.

Ms Power said paying your mortgage down quickly has long been a sound wealth-building strategy and can free up more of your money for other things.

She also noted the importance of reducing taxable income, with lump sum bonus or other payments into superannuation a tax-effective means of growing assets.

Ms Power said members can come up with additional strategies such as: “If your spouse earns less than $40,000, you may also qualify for a tax offset of up to $540 where you make an after-tax contribution of up to $3,000 to their account.
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For pre-retirees aged 50-64 years

According to the financial expert, this is the time for Australians to replenish their retirement income while they are still working.

“Catch-up concessional contribution rules allow people to use their unused cap amounts for up to five years before they expire by either sacrificing salary or making personal deductible contributions.”

“This is especially useful for those who have needed to focus on other financial priorities ahead of their retirement savings,” Ms Power concluded.