Why super is still super – strategies for tax-effective investing

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We’re now over a month into the new financial year that has brought about some of the biggest changes to Australia’s super system in a decade. Given the new reduced limits on contributions and how much can be held in retirement pension accounts, many savers have been left questioning whether super is still worthwhile investing in. With up to $1.6 million in pension phase still tax free, the short answer is likely yes. But how to build your target balance – particularly for high income earners – has changed.

A change in thinking can help make your savings work harder

It wasn’t long ago that you could salary sacrifice more of your annual pay. With the limit now only $25,000 for all ages including over-65s who meet the work test, it makes it harder to build that retirement nest egg. For high income earners especially, the concessional contribution cap may be used up by compulsory employer contributions alone, leaving no room for additional salary sacrifice contributions. This also means – and is a big change to financial plans – that making non-concessional contributions could now be more important to those planning for retirement than before.

Making non-concessional contributions can make a big difference

If you were taking advantage of the higher concessional limits in previous years you may now find yourself with extra cash flow from having to reduce your contributions. While it is not the traditional approach, making non-concessional contributions using this cash flow can add up to your final super balance.

For example, a 50-year-old today starting with a super balance of $300,000 could retire with $1,145,000 at age 65 by making non-concessional contributions of $1,000 per month on top of their maximum salary sacrifice. If you’re a little closer to retirement, you could still build a super balance of $815,000 in 10 years with the same level of contribution. The additional dollars in your pocket could mean an extra holiday every year in retirement!1

For those with more than $1.6 million in total super, there are alternative strategies

It’s important to talk to your financial advisor about what you can do because maximising yours and your spouse’s super first could be a smart move. As super is not accessible until preservation age at the least, it is important to consider how long your savings are locked up for. Make sure you maintain a personal cash reserve to cover those unexpected expenses, and for the amount you choose to put into super, invest it in a way that is aligned to your risk appetite.

While the new rules do make it harder to build your retirement nest egg than it was, the tax rates within super are still very hard to beat for proactive savers – you may just need to change your thinking. In Australia, super is still one of the most tax effective vehicles to invest, so, start planning early if you want to get the most out of your savings.

This insight may contain general financial advice and was prepared without taking into account your objectives, financial situation or needs. Before acting on any advice, you should consider whether the advice is appropriate to you. Seeking professional personal advice is always highly recommended. Any forward looking statements are based on current expectations at the time of writing. No assurance can be given that such expectations will prove to be correct.

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Ishara Rupasinghe


Ishara Rupasinghe is a senior strategy advisor providing tailored financial advice to Dixon Advisory’s Canberra-based clients.

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