The process of saving for retirement tends to follow a similar timeline for the majority of Australians. Most of us undertake very little saving for retirement in our 30s and 40s, and then desperately try to make up for lost time in our late 50s and early 60s. But due to proposed legislation changes, filling up the super coffers at the last minute will become a touch more difficult than it has been in the past. In fact, this year could be the last year that someone over age 50 can dump as much as $50,000 of their pre-tax money into super to boost their retirement savings (read more below).

Remember, there are two types of contributions to super – concessional and non-concessional contributions.

Concessional contributions are made with pre-tax earnings, such as employer’s compulsory Superannuation Guarantee (SG), which locks away 9% of your pre-tax salary each year into super, as well as any salary sacrifice amounts that you decide to allocate to super. The self-employed can make concessional contributions and claim it as a tax deduction in their individual tax return.

Meanwhile non-concessional contributions are made with after-tax money such as your savings, or the after-tax proceeds of selling an investment.

Any SG or salary sacrifice contributions you make to super are taxed at 15% as they enter the super fund. This means that if you pay more than 15% in tax each year, then you’ll save tax by contributing pre-tax earnings to super; the downside of course is that this money is locked away until retirement age. Anyone who pays less than 15% in tax (who has a taxable income of less than $37,000 for the 2011/2012 financial year) would probably be better off contributing to super with after-tax money (non-concessional contributions).

There are limits on how much concessional and non-concessional contributions can be made each year as outlined in the table below. In the past, the caps were much higher, which made it less likely for anyone to accidentally overstep the yearly limit on how much pre-tax money could be contributed to super. It was also much easier back then to boost retirement savings prior to retirement.

Many people forget that their employer’s SG contributions must be added to any salary sacrifice amounts to determine their total concessional contributions for the year. If this amount exceeds the ‘concessional cap’ or limit for the year, penalty tax is levied on the excess amount.

If you exceed the concessional contributions cap then the excess is taxed at 31.5%, on top of the 15% contributions tax. Clearly, you want to avoid paying 46.5% on concessional contributions at all costs.

As you can see in the table below, if you’re under age 50, then you’re limited to contributing $25,000 in pre-tax income to super, and those over age 50 can contribute as much as $50,000 of salary sacrifice and SG contributions. In the past the caps were much more generous; for the 2008/2009 financial year, the cap was $50,000 for under age 50, and $100,000 for over age 50.

It’s important to double check that you are looking at the correct financial year when calculating how much pre-tax income you can allocate to your super fund. If you inadvertently overstep the concessional contributions cap – by less than $10,000 – then you can request that the excess be refunded to you. This is a one-off clause for first-time offenders from July 2011. Also, ensure that your super fund has your tax file number because if it doesn’t it will just take out the maximum amount of 46.5% on any contributions.


 Concessional-Contributions Cap    
 Year  Cap  Cap for over age 50
 2011/2012  $25,000  $50,000
 2010/2011  $25,000  $50,000
 2009/2010  $25,000  $50,000
 2008/2009  $50,000  $100,000
 Non-Concessional Contributions Cap    
 Year  Cap  Bring-forward rule
 2011/2012  $150,000  $450,000
 2010/2011  $150,000  $450,000
 2009/2010  $150,000  $450,000
 2008/2009  $150,000  $450,000


If you’re age 65 or over then you have to be working at least part-time to make super contributions, and anyone over the age of 74 cannot continue contributing to super.

What’s happening in the 2012/2013 financial year is still up in the air. The Government has indicated that it will reduce the over-50s concessional contributions cap to $25,000, rather than the current $50,000, for specific circumstances; effectively anyone with a super account balance of more than $500,000 will be limited to the lower amount, and only those with smaller account balances, of less than $500,000, will have access to the larger cap of $50,000. Clearly, this is not legislated in Parliament just yet and there may be other qualifying conditions that you may need to meet to access the $50,000 concessional contributions cap.

However it does mean that anyone over 50 with a large super balance may only have until July 2012 to contribute $50,000 of pre-tax funds to super, if the rules takes effect. Remember that we’re just talking about concessional contributions here. If you’re aged 50 and over you can still make $150,000 in non-concessional contributions each year, or up to $450,000 over a three-year period using the bring-forward rule as we discussed the other week. This could tally to $200,000 of concessional and non-concessional contributions for someone over age 50 for the 2011/2012 financial year, or $500,000 if the bring-forward rule was applied. In fact, a couple over age 50 could potentially contribute $1 million combined in one year.

This article is of a general nature only and does not take into account your individual circumstances. For advice, TheBull recommends that you employ the services of a qualified financial adviser.