Aussie workers set for super windfall

Major changes to superannuation – including compulsory rises over the next few years – will deliver big wins for working Aussies, particularly millennials.

More than six million Australians are set to get a retirement savings boost, thanks to long-awaited superannuation changes, including the first compulsory increase since 2014.

The big winners will be young workers and low to middle-income earners, with more women set to benefit than men.

For a 35-year-old, who still has decades in the workforce before retirement, the gradual super increase to 12 per cent by 2025 would add just over $86,000 to their nest egg. However, if they take advantage of the 10 per cent increase in concessional contribution caps, the total would surge to around $656,000 by the age of retirement at 67, according to Colonial First State analysis.

The rise to 12 per cent would add nearly $51,600 to a 45 years-old’s super by retirement. However, hefty voluntary contributions would take the total to around $403, oo0.

However, for a 60 year-old who is closer to retirement, it equates to an extra $11,000. Major additional contributions would bump it up to nearly $110,000.

SUPER GUARANTEE TO RISE

From Thursday, the super guarantee will rise from 9.5 per cent to 10 per cent for the 2022 financial year. It is legislated to increase by 0.5 percentage points each year to 12 per cent in 2025.

The annual concessional contributions cap is also set to jump by 10 per cent to $27,5000, which will allow Australians to put more into their super either via salary sacrifice or personal contribution.

CFS general manager Kelly Power says the changes are important to ensure Australians, particularly younger workers, have sufficient super when they hit retirement at 67.

“The boost for retirement balances is greater for younger workers, thanks to the power of compound investment returns,” she says.

‘Greater for younger workers.’ Kelly Power, general manager of Colonial First State.

“This is particularly true for those who withdrew their super early last year to deal with the pandemic and cover basic expenses, now is the time to start making up some lost ground by using these contributions to replenish their super and rebuild their nest egg.”

Power says it’s very important that younger workers make extra contributions to their super, even if it’s a small amount like $10 a week.

“We know that the earlier you start, given the benefit of compound returns, the more that will mean to you over time.”

EXTRA PAYMENTS KEY TO SUPER WEALTH

Johann Castro, who owns his own real estate business called Red Rocket Realty in greater Brisbane, is looking to substantially top up his super after talking to his financial planner Helen Nan from Wealth and Life Planning.

The 36 year-old, who concedes he didn’t know much about the benefits of super before speaking to Nan, will contribute $2,700 a month to his super as part of his goal to retire early with a comfortable $3m nest egg by cutting back on purchases and meals out with his family.

“My goal is to retire by the age of 60 and to have $3 million in my super,” he says.

Kathleen Liang and Johann Castro, right, with baby George.

“Even if I put the money into extra mortgage payments, I wouldn’t be able to get there in the same time frame. So at compound interest of 8 per cent, I’ll put in the extra money to help me achieve my goal.”

Castro made the big life-changing decision following the birth of his first child George last year.

“I want to be able to spend more time with family and have a good lifestyle after 60,” he says.

Castro came to Australia from Peru to study around 12 years ago and subsequently met his wife Kathleen Liang with the pair deciding to settle in Brisbane.

YOUNG WORKERS BIG WINNERS

Industry Super Australia says 6.7 million Australians will benefit from the super hike, with young workers and low-to-middle income earners the big winners.

Around 63 per cent of those who will benefit are on wages less than $70,000, with the average worker set to get an extra $233 annually.

“Young people will be the big winners from these increases and help those that raided their super last year, during the downturn, make up some of the lost ground,” ISA chief executive Bernie Dean says.

Around 3.41 million women will benefit from the rise, compared to 3.36 million men, according to ISA’s analysis of tax file data.

“These increases will give women more financial independence and that means a better shot at a dignified

life in retirement, not one marked by poverty,” Dean says.

In total, an extra $1.5 billion will be paid in super in the 2022 financial year.

SUPER TIPS

*Know your super balance and fund/s

*Check how much super you will need for a comfortable retirement via the ASIC website

*Make additional super contributions

*Find out which super contribution caps apply to you

Originally published as Aussie workers set for super windfall