For many, the new calendar year is a time for change and refocusing, and the end of the financial year should be no different.
Australia recently welcomed some positive changes to superannuation for employees. So if you are an employee, now it’s time to focus on your finances and consider the following opportunities for maximising your employment package and overall financial position.
Are you a business owner?
Last week our blog shined a spotlight on super strategies for business owners. You can catch up with all the super changes and tips here.
Nominate your chosen super fund
Regardless of your age and income, now is the time to start building your super. You are more than likely eligible to advise your employer of your chosen super fund.
There are five basic types depending on your preferred strategy; higher returns with higher risks or greater security but with lower returns.
Generally open to those individuals working in a particular industry or under a particular industrial award.
Open to everyone. These funds are run by financial institutions.
Public sector funds
Open to Commonwealth, state and territory government employees.
Generally open to people working for a particular employer or corporation.
Self-managed super funds (SMSFs)
Option for anyone however, it must be carefully considered as all investment decisions and legal responsibilities will rest solely with you.
If you don’t choose a super fund, your employer will choose one for you, which may not be the best decision for your individual circumstances.
Make a salary sacrifice contribution
Boost your employer super guarantee contributions with a salary sacrifice arrangement or make your own contribution while saving on tax.
Contributing more to super is a great way to build your wealth. You only need to make small, but regular contributions to see a big impact over time.
While there can be many benefits to salary sacrificing some of your pre-tax salary into super, it is important to remember that your money will be locked away until you reach ‘preservation age’ or meet a ‘condition of release’. There are also limits on the amount that can be salary sacrificed into super.
When you salary sacrifice, your employer is entitled to calculate your super contributions on your reduced salary, however, many employers will still calculate super contributions on your original gross salary.
New first home saver account
With house prices high, the government recognised the key barriers to saving for a deposit. Effective as of 1 July 2017, voluntary superannuation contributions of up to $15,000 a year and a maximum of $30,000 over more than one year, can be used for the purposes of purchasing a first home.
For most people, the First Home Super Saver Scheme could boost the savings they can put towards a deposit by at least 30 percent compared with saving through a standard deposit account. This is due to the concessional tax treatment and the higher rate of earnings often realised within superannuation.
Voluntary contributions under this scheme must be made within existing superannuation caps.
To wrap things up, we asked Director of BFP, Brett Wright, to weigh in on the topic and talk the ‘fun stuff’:
Pay Life/TPD/Sickness & Accident insurances out of superannuation
The majority of Australian’s have insurance automatically within their super in some shape or form.
There are 3 types of insurances that you can own and pay for, using your super:
- Life insurance which can provide a lump sum payment to your family if you pass away.
- Total & Permanent Disability (TPD) which can provide a lump sum payment to you if you are not able to work again.
- Sickness and Accident which can provide a monthly benefit payment if a sickness or accident stops you from being able to work.
When assessing the pros and cons of having your insurances through your super, there are 4 main factors to consider:
- Price – Insurances that are provided automatically through super can cost more than alternatives, so it is important to check you are getting value for money and not paying too much.
- Quality – Generally the personal insurances in your super are a lower quality than what you could get outside of super, which is why it is important to consider what you are covered for, what you are not covered for and are there any grey areas or technicalities in your policies that could jeopardise a claim payment?
- Tax – The premiums can be deductible to your super fund, however, in some circumstances there can be tax payable on insurance benefits through super, where there otherwise would be no tax payable on benefit payments if the policy was owned outside of super.
- Cashflow and retirement savings – Funding your personal insurances through super can help with your cashflow, but it is important to keep tabs on this strategy and make sure it is not eroding your superannuation balance too much over time.
There are many different ways to structure Life, Disability, Sickness and Accident insurance policies, with some being able to be held within super and some needing to be held outside of super. It is best to discuss this with your accountant and insurance adviser before deciding on what policies will be best for you and how to structure the ownership of them.
Think salary sacrificing is for you?
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Please note that this is general advice only and should not be taken as advice specific to your circumstances. You should consider whether the information is appropriate for your needs and where appropriate, we recommend you seek professional advice
We help business owners and executives protect their income and cash flow if they cannot work because of an illness or accident.
For 28 years we have helped our clients with their insurance needs, representing our clients best interests, not the big insurance companies.
We have a 100% success rate getting our clients legitimate insurance claims paid and this service is free to our clients.
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