Concessional contributions – what’s new
When it comes to superannuation, it is necessary to keep up with the changes, and today we are talking about the update to the most popular type of superannuation contribution – concessional contribution to super.
From 1st July 2024 there will be changes introduced to this type of contribution, that have already been approved by the parliament, so get ready to keep growing your superannuation retirement savings.
If you don’t feel you fully understand concessional contributions, read the following articles that provide full explanation of this type of contribution: “Concessional contributions to super – what is SG?” and “Catch-up carry-forward concessional contributions” and “Concessional contributions to super – salary sacrifice”
Let’s start with a very short explanation what concessional contributions are. For more details, please refer to those articles.
We have two types of super contributions to super:
- Concessional – meaning someone claimed a tax deduction, therefore the actual contribution is now subject to a concession tax at 15%
- Non-concessional – meaning no tax has been claimed as a tax deduction, therefore this contribution is not subject to any tax, 100% of your money contributed stays in your fund.
And today we are talking again about concessional contributions and the change to be introduced in the new financial year.
Concessional contributions comprise of two parts:
- Employer contributions
- Your voluntary contributions – either salary sacrifice or personal deductible contributions.
Change No 1
Superannuation Guarantee rate is being increased from current level of 11% of your gross taxable income up to 11.5% from 1st July 2024.
What does that mean in reality?
- If you are on $50,000 gross income, your employer contributions will increase from current $5,500 up to $5,750 in 2024/25 financial year. That is an extra contribution of $250 over the year.
- If you are on $100,000 gross income, your employer contributions will increase from current $11,000 up to $11,500 in 2024/25 financial year, which is an extra contribution of $500 over the year.
This increase is good news for you, but it is already a known fact that many small businesses will have lots of financial issues to afford this super increase.
Keep in mind that next financial year, the SG contributions will be increased again up to 12%, which for now will be the final amount of employer contribution.
Change No 2
Due to indexation, your total concessional cap will increase from 27,500 in 2023/24 financial year to $30,000 in 2024/25 financial year.
Therefore, you can utilise this to your advantage either by increasing your salary sacrifice up to the cap limit for concessional contributions or just simply make a personal concessional contribution in one lump sum at the end for the financial year.
Change No 3
From 1st July 2024 the preservation age will be the age of 60. What that means is, if you are eligible to commence an income stream or you can withdraw the lump sum from your superannuation you will not pay the Pay as You go PAYG tax on those benefits.
Every dollar of contribution to super counts, but the change will have a significant impact on super balances for all young people just starting out.
Lets, look at this incredible super contribution outcome – and please tell your children:
We have John, who at the age of 25 just landed his first job paying him an income of $80,000pa.
If we assume he will be working till age of 67 and just rely on his employer contributions, in 2024/25 it will be 11.5% and the year after 12% onwards, assuming a rate of return of 7%pa, he will have approx. $532,858 at the age of 67 saved for his retirement.
However, if he maximises his concession cap every year, the outcome is the incredible $1,557,271. Over a $1mil more saved in the super fund just by adding extra every single year.
The outcome is a combination of regular annual contributions plus the outcome of the compound interest in the very tax- friendly environment of superannuation fund.
I hope this example gives you a good indication as to how effective savings within the super fund can be.
And even if you are not 25, as I said, every saved dollar in super counts, so please take advantage of this increase in concessional contributions from 1st July 2024 and grow your super for your upcoming retirement.
If you would like to catch up with me personally to ask specific questions or receive the full step by step strategy advice on the best set up for your retirement, just click the BOOK A MEETING button on my website that will take you to my personal calendar, where you can choose the day and time for us to meet and discuss your retirement planning.
By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement
