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Given the continual changes, it can be easy to see why some wealth accumulators and retirees have become frustrated with super; however, it’s important to remember the key benefits that continue to make it such a powerful investment structure. In this article, we discuss several of these.

Written and accurate as at: 9 Nov 2017

Over the course of the last three decades there has been continual change regarding the rules governing superannuation.

In recent times, some of the most significant changes have come from the proposed measures released in the 2016 Federal Budget, many of which took effect on 1 July 2017.

For example:

1. The reduction in the concessional and non-concessional contribution cap limits.

2. The introduction of:

    • the ‘total superannuation balance’, which places additional eligibility requirements on individuals regarding, for example, the unused concessional contributions cap carry-forward provision, the non-concessional contributions cap and bring-forward rule, the Government Co-Contribution and the Spouse Contributions Tax Offset, and
    • the ‘transfer balance cap’, which places a limit on the amount of superannuation that can be transferred from accumulation phase to pension phase.

Given the continual changes, it can be easy to see why some wealth accumulators and retirees have become frustrated with superannuation; this may be especially true for those with a money personality that favours a preference for structure and order when it comes to dealing with money.

Despite these changes, it’s important to remember the key benefits that continue to make it such a powerful investment structure.

Tax treatment

When it comes to building and maintaining wealth, superannuation is widely considered to be one of the most tax effective investment structures available. This is particularly evident when considering the tax treatment of income and capital gains from assets held inside superannuation.

Below is a brief overview of the tax treatment of income and capital gains whilst in accumulation and pension phase.

Accumulation phase accounts and Transition phase pensions
In the accumulation and transition phase, investment income within your account is generally subject to a maximum of 15% tax. Whereas, capital gains on assets held for longer than 12 months receive a 1/3 tax discount, which reduces the effective tax rate to 10%.

Retirement phase pensions
In the retirement phase, investment income and capital gains within your account are exempt from taxation, subject to the transfer balance cap.

Pension income
If you are aged 60 or over, any income payments from your Retirement or Transition phase account based pension will be tax-free to you. Withdrawals from age 60 (available if you have satisfied a condition of release), can also be paid to you tax-free.

For further information regarding the tax treatment of income and capital gains from assets when held by other structures (e.g. individuals, trusts and companies), please see the relevant sections in our Tax and Structures module.


Concessional and non-concessional contributions
Despite the decreases in the concessional and non-concessional contribution cap limits (and the added restrictions imposed by the introduction of the total superannuation balance), with careful and appropriate planning these new conditions can still be leveraged to your benefit when it comes to accumulating wealth for retirement.

As it stands, for the 2017/18 financial year:

  • The concessional contributions cap limit is $25,000 per annum. Furthermore, the carry-forward provision for unused concessional contributions will commence from 1 July 2018; and, subject to meeting the relevant eligibility requirements (e.g. a total superannuation balance less than $500,000), the 2019/20 financial year will be the first year that carried forward amounts will be able to be used.
  • The non-concessional contributions cap limit is $100,000 per annum and the three-year bring-forward rule still applies; however, it’s important to note that there are now additional eligibility requirements regarding your capacity to make non-concessional contributions. For example, if you have a total superannuation balance equal to or over $1.6 million at the end of 30 June in the previous financial year, you are no longer able to make further non-concessional contributions, and a 30 June total superannuation balance of at least $1.4 million will reduce the amount of non-concessional contributions you can bring forward. Furthermore, there are also transitional arrangements in place if you triggered the bring-forward rule in the 2015/16 or 2016/17 financial year.

Superannuation Guarantee

For most employees, their employer is required to contribute 9.5% of their gross salary each year as a mandatory Super Guarantee contribution (this is gradually increasing up to 12% from 2021/22 to 2025/26). These contributions count towards your concessional contribution cap limit. Depending on your personal circumstances, the benefits of the Superannuation Guarantee in building wealth for retirement can be considerable when you look at the long-term impact of these contributions on your superannuation account balance. Let’s look at a simplified example.

David is 30 years old, works as an employee, earns $60,000 per annum (indexed to inflation – assumed to be 3%), and has a current superannuation account balance of $30,000 with underlying investments that generate assumed net returns of 6% per annum. His employer contributes the mandatory Super Guarantee (SG) contribution into his superannuation account, however David doesn’t make any additional contributions. When measuring in today’s dollars, factoring in the SG contributions and the abovementioned investment returns, David’s superannuation account balance may be expected to grow over time to $355,986 (age 60) and $443,426 (age 65).

Salary Sacrifice or Personal Deductible Contribution

Another benefit of superannuation is your ability to make additional concessional contributions via salary sacrifice arrangements and/or personal deductible contributions, subject to meeting the relevant eligibility requirements. This can be great for not only building wealth for retirement but also, depending on your personal circumstances, may increase your take home pay. Let’s look at a simplified example.

Jillian is 40 years old, works as an employee and earns $90,000 per annum. She is currently contributing $2,400 per annum to superannuation via non-concessional contributions (after tax); however, she is considering the option of salary sacrificing instead.


Potential benefits of salary sacrificing
(rounded to nearest dollar)
 Annual salary and tax details Non-concessional contribution Salary sacrifice contribution
 Gross salary $90,000 $90,000
 Salary sacrifice contributions $0 -$2,824*
 Taxable income $90,000 $87,176
 Income Tax -$22,732 -$21,630
 Non-concessional contribution -$2,400 $0
 Take home pay $64,868 $65,545
 Super contributions Non-concessional contribution Salary sacrifice contribution
 Employer super contributions $8,550 $8,550
 Salary sacrifice contributions $0 $2,824
 Concessional contributions tax -$1,283 -$1,706
 Non-concessional contributions $2,400 $0
 Super co-contributions $0 $0
 Net super contributions $9,668 $9,668
 Total take home pay and net super contributions $74,536 $75,213

*Increased to factor in the 15% contribution tax paid on concessional contributions upon entering superannuation.


So, by salary sacrificing ($2,824 per annum) instead of making non-concessional contributions ($2,400 per annum), Jillian’s net super contributions would stay relatively the same; however, her take home pay would increase by roughly $677 per annum.

Please note: It’s important to check whether your employment agreement specifies a minimum level of employer superannuation contributions, otherwise your employer may count your salary sacrifice contributions towards their mandatory Superannuation Guarantee obligation. If Jillian’s employment agreement does not stipulate the amount of $8,550 per annum, her employer could legally reduce their superannuation contributions to as little as $5,458 per annum (($90,000-$2,824) x 9.5% – $2,824). A bill recently entered parliament to prevent this practice. While this has yet to be legislated, this may come as a welcome relief for some employees.

Other contribution benefits

In addition to the abovementioned, the Government also incentivises you to build wealth inside superannuation, both individually and as a couple, by allowing you to take advantage of other contribution benefits. Below is a brief overview of some of these:

  • Spouse Contribution – If your spouse has no source of income or is a low-income earner, you may be able to claim a tax offset of up to $540 if you make non-concessional contributions to your spouse’s superannuation account.
  • Government Co-Contribution – If you earn less than $51,813 per year (before tax) and make non-concessional contributions to your superannuation account, you may be eligible for a co-contribution from the Government. The maximum co-contribution amount that you may be entitled to is $500.
  • Contribution Splitting – This is where you may be able to arrange for up to 85% of your concessional contributions for the previous financial year to be transferred to your spouse’s superannuation account. This may be a valuable strategy for couples to increase their tax-free income in retirement, increase future social security benefits or access superannuation funds sooner.

For further information regarding these benefits, and their respective eligibility requirements, please see the relevant sections in our Superannuation module.

Insurance inside superannuation

When it comes to establishing personal insurances there are options available for doing so both inside, and outside of, superannuation. You may find that your cashflow is restricted due to other commitments, such as your general living costs and debt obligations (e.g. home loan, credit cards or personal/car loans). Given the importance of personal insurances and cashflow challenges, establishing personal insurances inside of superannuation is often an alternative that can be considered.

One of the benefits of superannuation is your ability to hold certain types of personal insurance (e.g. Life, Total and Permanent Disability and Income Protection) and fund the required insurance premiums from your superannuation account balance and/or contributions. Furthermore, the premiums for these types of personal insurance will generally be tax-deductible to your superannuation fund.

Please note: It’s important to understand the impact of insurance premiums on your superannuation account balance over time, the restrictions imposed by superannuation law on personal insurance policies, and the tax treatment of some payouts upon a successful claim.

Moving forward

Change is often an inevitable part of life and can occur when you least expect it. What is important is to assess the situation, take the time to look at the bigger picture and then adjust your strategies with the tools available to you so that you can continue on your journey towards achieving your financial goals and objectives.

Despite the recent changes to superannuation, it remains a powerful investment structure for wealth accumulators and retirees alike. As such, if you have any queries regarding anything discussed in this article, or need help mapping a path towards achieving your financial goals and objectives, then please contact us.