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Superannuation can be confusing for the best of us, so anyone would be forgiven for stuffing up slightly or not knowing all the tips and tricks to get the most out of your super fund.
In fact, you may or may not be surprised to hear that “What is a super fund?” is one of the most commonly googled super questions. So you’re by no means alone in your limited superannuation knowledge.
That’s why we’ve called on four big time financial experts to highlight the common super mistakes they see people making all too often, to hopefully help you save some money and make your super fund go further.
1. Are you paying too much superannuation?
Contributing to super is a great way to save, but it pays to be aware of the rules as there are concessional caps and penalties for getting it wrong.
“A common mistake is to accidentally go over your non-concessional contribution limit,” says Joanna McCreery, director of Majella Wealth Advisers.
“Concessional contributions typically include the amount your employer pays into your account for its super guarantee contribution (SGC). It also includes salary-sacrificed payments. Tax-deductible contributions that self-employed people make are also concessional contributions.” The concessional contribution limit is $25,000, FYI.
So do your sums before deciding on how much you will add to super yourself – and remember your employer’s super guarantee contributions count as well. If you need help calculating the right amount or think you’re close to your cap, contact your super fund and they will be able to help you with the numbers.
If you do go over your concessional cap you may have to pay your marginal tax rate on the excess amount rather than 15%. An additional charge is also made. “The amount of this charge reflects a notional interest charge for tax being paid later than was the case for other income relating to the financial year concerned,” says the SuperGuru website.
You can withdraw up to 85% or your excess concessional contributions from your super fund to help to pay your income tax assessment when you have excess contributions.
2. Are you letting insurance eat away at your super?
Taking out insurance cover in super – including death, total and permanent disability (TPD) and income – can be attractive as it means the premiums are paid from the super contributions and/or balance so the cost doesn’t come from personal cash flow.
However, some common mistakes are made when arranging insurance through super. One of these is not considering the effect the premium payments will have on the balance at retirement.
“If you pay an average of $1500 a year in premiums over a 40-year working life, your super balance may be $230,000 lower at retirement,” says Suzanne Haddan, managing director at BFG Financial Services.
That’s because some of your contributions will be going towards paying for the insurance rather than being invested to help your money grow.
“The solution is to contribute extra amounts to cover the premiums,” Haddan adds.
So if you know that your insurance premiums are costing you $100 a month, consider contributing that amount into your super fund yourself.
3. Find lost super: Review your fund and don’t neglect the details
One of the biggest mistakes people can make is not regularly reviewing all aspects of their super. First, consolidate superannuation and all accounts and find lost super.
“Getting your annual statement is a great trigger for a review,” advises Laura Menschik, director of WLM Financial Services.
“There are several things you should look for, such as the balance at the start and end of the year, that you have received all your contributions, that you’re paying the correct tax and that the money is being invested in the right option.
“You should store all your statements in a safe place so you can keep track of your accounts and know how to contact your fund.”
4. Paying super contributions too late
A common mistake that occurs at the end of the financial year is the last-minute payment of super contributions. Quite often people have not thought about maximising their contributions until close to June 30 and problems can occur when payments are late.
“Issues with last-minute contributions, either employer or personal, are caused by EFT or BPAY or delays in processing cheques, as super contributions must be allocated in the year in which they are received by the fund,” explains Andrew Yee, director of HLB Mann Judd.
“To ensure that your super contributions are paid into your fund before the end of the financial year, you need to allow at least a couple of business days for banking and postal delays.”
