Provided by Mercer: 28/5/09
In the 2009 Federal Budget, the Government announced a temporary reduction in the matching rate and maximum contribution for the super co-contribution. This reduction comes into effect from 1 July 2009.
Additionally, up until now, voluntary salary sacrifice contributions have not been included in income when determining eligibility for such payments. From 1 July 2009, based on legislation passed after the 2008 Federal Budget, they will be included.
What is the super co-contribution?
The super co-contribution is designed to boost Australians’ retirement savings. If you fall within a particular income range, and make additional, after-tax contributions (which are also known as non-concessional contributions), to your super, the Government will match those contributions up to a certain limit.
The way it works in the current financial year is that for every after-tax dollar a person contributes to their super, the Government will contribute $1.50, up to a limit based on the person's total income (and subject to a maximum of $1,500). This means that, in order to receive the maximum co-contribution, a person must make a personal contribution of $1,000 to a complying super fund.
However, the co-contribution is means-tested so that if you have a total income of $30,342 or less per year and you make a personal contribution of $1,000, you will be eligible to receive the maximum co-contribution of $1,500. After that, the maximum co-contribution is phased out at 5 cents for every dollar earned above $30,342 so that if you have a total income of $60,342, you are no longer eligible for the co-contribution.
Currently, your total income includes your assessable income (from your tax return) and reportable fringe benefits (which your employer reports on your Payment Summary). So if you have more than $30,342 of total income, you can currently make salary sacrifice contributions to superannuation to reduce your total income. This then means you can gain or improve on the co-contribution you are eligible to receive.
How will things change from 1 July 2009?
From 1 July 2009, voluntary salary sacrifice contributions will be included as part of your total income when assessing your eligibility for the co-contribution.
Let’s look at Gary’s situation before and after 1 July 2009. Gary only has income from his employment so doesn’t have any reportable fringe benefits.
| | 2008/2009 financial year | 2009/2010 financial year |
| Salary | $65,000 | $65,000 |
| Salary sacrifice | $35,000 | $35,000 |
| Assessable income | $30,000 | $30,000 |
| Total income | $30,000 | $65,000 |
| Personal contribution | $1,000 | $1,000 |
| Co-contribution | $1,500 | $0 |
As the salary sacrifice amount will be included in his total income, Gary will not be eligible for the co-contribution after 1 July 2009. This occurs regardless of the value of his after-tax contributions to his super because he has exceeded the maximum income at which the co-contribution cuts out.
The Government has also announced a temporary reduction in the rate of the Government's co-contribution payments to apply from 1 July 2009. The rate of co-contribution over the next few years, expressed as a percentage of the member's contribution, will be:
- 100 per cent for 2009-10, 2010-11 and 2011-12, with a maximum co-contribution of $1,000. The co-contribution will be reduced by 3.333 cents for each dollar by which the person’s total income exceeds the shade out threshold for receiving the full co-contribution;
- 125 per cent for 2012-13 and 2013-14, with a maximum co-contribution of $1,250. The co-contribution will be reduced by 4.167 cents for each dollar of total income above the shade out threshold; and
- 150 per cent from 2014-15 onwards, with a maximum co-contribution of $1,500. The co-contribution will be reduced by 5 cents for each dollar of total income above the shade out threshold.
Work out what this means for you
Adding salary sacrifice into the total income calculation means that some people will receive a smaller co-contribution and some people will no longer be eligible to receive the co-contribution at all.
But an immediate consideration if you haven’t put in a personal contribution as yet, is whether or not you should do so before 30 June 2009 as this will be the last year where the matching co-contribution will be as high as $1,500 for some time to come.
If you will no longer be eligible for the co-contribution under these changes, you may want to consider how to boost your retirement savings without this type of financial assistance from the Government. A financial adviser is well placed to determine the best outcome for you given your personal circumstances and in light of other changes that come into effect from 1 July 2009.
More information
This information has been prepared by Mercer (Australia) Pty Ltd ABN 32 005 315 917 for general information only. The information does not take into account your personal objectives, financial situation or needs. Therefore, you should not act on this information if you have not considered the appropriateness of this information to your personal objectives, financial situation and needs. You should consult a licensed or appropriately authorised financial adviser before making any investment decision.
