Wage growth sparks increase in superannuation contribution limits

BY DANIEL AIELLO AND LEIGH DELEDIO FROM UFINANCIAL

Thanks to a surge in wages, workers are set to pump more money into their superannuation, with both pre-tax and post-tax contribution limits increasing starting July 1. The pre-tax limit rises by $2500, and the post-tax limit by $10,000 annually.

UFinancial Planning Director Daniel Aiello says the increase in contribution limits is a golden opportunity for Australians to accelerate their retirement savings and potentially reduce their tax liability.

“Especially for those nearing retirement, the next few years are crucial for maximising superannuation benefits,” he said.

Experts predict that mortgage-free individuals, pre-retirees, and small business owners will capitalise on this opportunity to boost their super savings.

Additionally, the concessional contribution limit will surge from $27,500 to $30,000, while the non-concessional cap leaps from $110,000 to $120,000. This adjustment was triggered by a 4.5% increase in average weekly ordinary time earnings (AWOTE) reported by the Australian Bureau of Statistics, necessitating just a 0.7% rise.

Finance expert, Mr Aiello said understanding the implications of these changes on your long-term financial strategy is key.

“For instance, small business owners looking to sell their business can use the non-concessional contributions cap increase to move more of their proceeds into super, which is generally a more tax-effective environment,” he said.

Concessional contributions include mandatory employer payments (currently at 11% annually), salary sacrifices, and tax-deductible contributions. Individuals can make up to five years’ worth of concessional catch-up contributions in a single year.

Many opt for after-tax contributions due to the advantageous tax treatment, with earnings taxed at only 15%, compared to marginal tax rates that can reach 47% including the Medicare levy.

“Leveraging after-tax contributions can be a smart strategy for individuals in higher tax brackets. It’s not just about saving more into your super; it’s about optimising your overall tax position to keep more of your hard-earned money,” Mr Aiello added.

Moreover, individuals can front-load their non-concessional contributions by bringing forward the equivalent of one- or two-years’ worth of their future annual cap, potentially contributing up to $360,000 from July 1.

Mr Aiello believes the ‘bring-forward- rule is a worthwhile approach.
“For those who have come into a lump sum of money, whether from an inheritance, property sale, or other means, the ‘bring-forward’ rule is an exceptional strategy that can significantly boost your super balance and secure your financial future.”