Rebuilding super after early access

25 May 2020

Super savings are for your retirement, for ‘future you’. However, for financial difficulty caused by Coronavirus, accessing your super before you retire may be an important way to help make ends meet at a difficult time. We consider how you can boost and rebuild your retirement savings in these circumstances.

Early access to super—important considerations

This is an exceptionally difficult time for many people. Accessing some of your super savings may help you to make ends meet until your circumstances improve. If you’re eligible, you may be able to make an application to withdraw up to $10,000 before 30 June 2020 and another application for a second withdrawal of up to $10,000 from 1 July 2020 to 31 December 2020. You can find out more about this measure, and whether you are eligible to apply, on our dedicated early release of super webpage.

However, accessing your super early will naturally have an impact on your retirement savings, and
you should carefully consider your individual circumstances before you make any decisions in response to the current situation. Read our article Wealth Warning for more information.

Your insurance in your super cover may also be impacted if you choose to withdraw funds early. This is because your insurance premiums are paid from your super account which will further reduce your super balance (unless your employer pays for the cost of your insurance cover) – therefore, you must have enough super savings to pay for the cover. It’s important to take a moment and think carefully about whether you want to have insurance as part of your super. You can find out more about insurance in super here.

We strongly encourage you to speak with your financial adviser who can advise you of other benefits and concessions that may be available to you to help make ends meets, and to fully assess the impact on your retirement savings and understand the impact to your insurance in super. If you don’t have a financial adviser, please call us on 132 652 if you wish to discuss your options.

Should you need to access your super early, there are a number of strategies that can help you get your super back on track when the time is right.

Managing the financial impact of COVID-19

Our Coronavirus support page has articles, videos and frequently asked questions.

Strategies to rebuild your super at a glance

We look at three key strategies below that could help you to boost your retirement savings between now and retirement. When your circumstances change and you have the opportunity to consider rebuilding your retirement savings, think about it as soon as possible. The sooner you start, the more you’ll help get your retirement savings back on track.

1. Allocate some of your pre-tax salary to super

 Who could this work for?

This may be appropriate for those who have sufficient cashflow to divert some of their pre-tax salary to super (before it hits your wallet for spending). It doesn’t need to be a large amount to start and you can further increase the amount that you contribute in the future once things are back on track.

 Strategy at a glance

If, and when, the time is right, you may be able to arrange for your employer to contribute some of your future pre-tax salary, wages or bonus directly into your super fund—this is called a salary sacrifice contribution.

By making regular additional contributions to super, you’re helping build up your account balance again. Don’t be afraid to start small if it is all you can commit—even small incremental amounts add up over time. The sooner you can start making even small contributions, the better. Salary sacrifice contributions are made from your pre-tax salary which can be a great, disciplined way to save for retirement. Super is a long term investment, so, the younger you are when you start saving for your retirement, the more time you’ll have to benefit.

 Important information to consider

Salary sacrifice contributions count towards the concessional contributions cap. Concessional contributions include employer contributions (also known as super guarantee) and personal contributions claimed as a tax deduction. Breaching the cap may lead to additional tax penalties.

Also, salary sacrifice contributions are generally taxed at the concessional rate of up to 15%1 rather than your marginal rate, which could be up to 47%2. Depending on your circumstances, this strategy could therefore reduce the tax you pay on your salary and wages by up to 32%.

2. Make a spouse contribution and receive a tax-offset

 Who could this work for?

Members who are in a couple, where one spouse earns less than $40,000 pa and there is capacity to make a super contribution on behalf of a spouse.

 Strategy at a glance

If you make an after-tax contribution into your spouse’s super account and they earn less than $40,000 pa, you may be eligible for a tax offset of up to $540. To qualify for the full offset of $540 in a financial year, you need to contribute $3,000 or more into your spouse’s super account and your spouse must earn $37,000 pa or less3.

A lower tax offset may be available if you contribute less than $3,000 or your spouse earns more than $37,000 pa but less than $40,000 pa.

Spouse contributions can be a great way to grow your super as a couple and to be rewarded via a tax offset for saving for retirement.

 Important information to consider

A spouse contribution counts towards your spouse’s non-concessional contribution cap and must be within this cap to entitle you to the tax offset. To find out more, including important information about eligibility rules, visit our information page and the ATO website.

3. Make personal contributions and claim a tax deduction

 Who could this work for?

Unlike salary sacrifice contributions, personal contributions can be made with your take home pay or savings. You can do this regularly, or you could even wait until closer to the end of financial year, which could provide greater flexibility and planning options if you have irregular income or expenses and need to review your circumstances before committing to a regular contribution.

 Strategy at a glance

You could make a personal contribution and claim a tax deduction for the amount (turning it into a personal deductible contribution). This could help to reduce your assessable income and manage your tax liability. The contribution will generally be taxed in the fund at the concessional rate of up to 15%4, instead of your marginal tax rate which could be up to 47%5.

Depending on your circumstances, this strategy could result in a tax saving of up to 32% and enable you to increase your super. You could put some or all of these savings towards making even more super contributions in the following year.

 Important information to consider

These contributions are treated as concessional contributions and count towards your concessional contributions cap. Exceeding your cap may result in significant tax penalties, therefore, it is important you consult your financial adviser or a specialised tax adviser before making any decisions. You can also read more on our information page here.

Get a Government top up to your super contributions

You may also be eligible to apply for the Government’s co-contribution super measure, where the Government may contribute up to a maximum of $500 to the super accounts of people who meet certain criteria.

To be eligible, you must be able to answer yes to all of the following:

  • you've made one or more eligible personal super contributions to your super during the financial year
  • you pass the income threshold test and the 10% eligible income test
  • you’re less than 71 years old at the end of the financial year
  • you didn’t hold a temporary visa at any time during the financial year (unless you’re a New Zealand citizen or it was a prescribed visa), and
  • you’ve lodged your tax return for the relevant financial year.

Visit the Australian Tax Office’s (ATO) website for more information on eligibility for the Government co-contribution, and our information page to find out more. It is also important to note that you’re not entitled to a Government co-contribution for any personal contributions you’ve made that have been allowed as a tax deduction (see the ATO’s website for more information on claiming deductions for personal super contributions), or a contribution made for you by a spouse.

Next steps

It may give you some peace of mind to know that you are able to make what might be a necessary decision today to access some of your super savings to assist you and your family at a difficult time, without compromising your retirement. In the future, even small, regular contributions could be important in getting your super savings back on track for retirement as every little bit helps. Depending on your cash flow, financial commitments and personal circumstances, there are many ways that you can restore your super balance.

To find out if these strategies are right for you and to understand more about the rules and eligibility conditions, we recommend you speak with your financial adviser or call us.

Important information and disclaimer

This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. The information in this article is current as at 1 May 2020 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. An investment with NULIS is not a deposit with, or liability of, and is not guaranteed by NAB or other members of the NAB Group. Opinions constitute our judgement at the time of issue. In some cases information has been provided to us by third parties and while that information is believed to be accurate and reliable, its accuracy is not guaranteed in any way. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the NAB Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication. Past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market.

1Individuals with income above $250,000 will pay an additional 15% tax on salary sacrifice and other concessional super contributions within the cap.

2Includes Medicare Levy.

3Includes assessable income, reportable fringe benefits and reportable employer super contributions.

4Individuals with income above $250,000 in 2019/20 will pay an additional 15% tax on personal deductible and other concessional super contributions.

5Includes Medicare Levy.