Aware flags ‘win for pre-retirees’ in contribution caps rise

Aware Super has welcomed the increase in contribution caps from 1 July 2024, saying it will give older members “extra firepower to top up their retirement savings.”

The super contribution cap is set to increase for the first time in three years, rising from $27,500 to $30,000. The non-concessional cap, too, will rise from $110,000 to $120,000.

This followed an announcement from the Australian Bureau of Statistics that average weekly ordinary time earnings (AWOTE) climbed 4.5 per cent, seasonally adjusted, in the year to November.

It needed to rise just 0.07 per cent to trigger an increase in super contribution caps, Aware noted.

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Concessional contribution caps are indexed to said AWOTE in increments of $2,500, while the non-concessional cap is set at four times the concessional cap.

According to Aware Super’s general manager for advice Peter Hogg wages have been climbing rapidly in recent years, but contributions caps haven’t changed since 2021 because of the way they’re indexed, resulting in “playing catch-up.”

“With that said, the 2021 increase was the first in four years. The fact we’ll now see an increase after three years reflects the strong wage growth we’ve seen so far this decade,” he said.

He believed the increase in contribution caps would be “heartening” for many older members preparing for or settling into retirement, as they are more likely to make extra contributions than their younger counterparts.

“The higher caps will give them extra firepower to top up their retirement savings and make the most of the favourable tax settings in the super system. These settings are in place to help people save for retirement and ultimately take pressure off the taxpayer by reducing demand for the age pension, so those who are in a position to make use of the increased limits next financial year should give serious consideration to doing so,” he explained.

The $160 billion fund highlighted concessional super contributions, which include compulsory super payments from employers, and pre-tax salary sacrifice and voluntary contributions that members then claim as a tax deduction, are taxed at only 15 per cent – significantly less than the marginal tax rates most workers pay.

Moreover, many members make non-concessional contributions to their super, such as take-home pay that are funds they’ve already paid tax on, as investment earnings in super are generally taxed at only 15 per cent instead of their marginal tax rate.

However, Hogg cautioned that making use of the higher caps might not benefit all members.  

“The increase in the caps will typically benefit those with more disposable income – empty-nesters, for example. But extra super contributions won’t always be the best option. If you still have a mortgage, for instance, you may be better served by making extra repayments,” he elaborated.

The executive pointed out that many super funds provide advice to members on their superannuation for no extra cost, and more complex advice for a fee, which could be useful for members seeking the best strategy for their circumstances.