Ever wondered why people make extra superannuation contributions? Do you want to know how to make extra superannuation contributions?

Firstly we should define what a ‘standard’ superannuation contribution is, so that an extra superannuation contribution can be more clearly defined.

A standard superannuation contribution would commonly include all mandatory employer contributions.

An employer is required to make compulsory Superannuation Guarantee (SG) contributions into an employees’ superannuation account. However, there is a quarterly maximum income contribution base that limits the level of income that an employer is required to pay SG payments on. Click here to read more.

The amount of this standard contribution is currently equal to 9.50% of the employees’ salary. This amount has been progressively increasing since 1 July 2013 from 9.0% and is eventually expected to reach 12.0%. The time frame on this increase is being continually delayed. At the time of writing it should reach 12% by 2026.

The concept behind the SG system is that an employee should have a replacement income of around 70% of pre-retirement income throughout retirement after having worked for around 30 years.

There is, however, a scope for people to make extra contributions to superannuation, which may be done for a number of reasons.

Here are a few reasons why an individual would want to make additional contributions to their superannuation account:

1. Some employees, particularly employees of government or semi-government organisations, will receive additional contributions from their employer if they themselves make voluntary contributions to their superannuation fund.

2. An employee can make deductible salary sacrifice contributions, which means foregoing some of their salary in exchange for increased superannuation contributions. The benefit of this is to reduce their personal assessable income and increase savings for retirement.

3. Extra ‘after-tax‘ contributions may result in a low income earner being eligible for the Government’s superannuation co-contribution, which matches up to 50% of voluntary contributions.

4. A self-employed person does not receive standard contributions, as they have no employer. Therefore they may make contributions to superannuation in order to save for retirement and potentially reduce their income tax obligations (some contributions are a tax deductible expense).

5. A person may hold life insurance within their superannuation account. If so, they may wish to make extra contributions to cover the premium costs of the insurance to ensure it is not eroding their retirement savings.

6. Transferring personal savings into superannuation via non-concessional contributions can place more savings into the tax-effective superannuation environment; whereby all earnings are taxed at a maximum of 15% – even lower in some cases. This rate can be much less than an individual’s marginal tax rate, if they were to invest these same savings in their own name, rather than super.

If you are wanting to make extra contributions into your superannuation account, it is important to make sure that such contributions will not cause you to exceed the relevant concessional (tax deductible) contribution cap or the non-concessional (after-tax) contribution cap.

You also need to be aware that all contributions made into superannuation will be preserved until a superannuation condition of release is met. Making extra contributions will limit your immediate access to funds.

If you want to make extra contributions from your salary into superannuation, you will usually need to speak to your employer’s payroll officer.

If you want to make extra contributions from your personal bank account, you should first speak to an adviser or your accountant. Your superannuation provider may be able to help answer any questions too.

Be sure not to exceed the relevant Concessional and Non-Concessional caps.

Click here to read more about Concessional vs Non Concessional contributions to make sure you are making the right one and click here for superannuation rules that apply post 1 July 2017.

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Chris Strano

Chris Strano is a specialist independent superannuation author for SuperGuy.com.au - one of Australia's leading superannuation information resources.

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