Super contribution caps rise in win for pre-retirees as wages climb

Super contribution caps will increase for the first time in three years on July 1 after official figures revealed wages had again jumped.

In a win for super members, the concessional contribution cap will rise from $27,500 to $30,000, while the non-concessional cap will rise from $110,000 to $120,000.

It comes after the Australian Bureau of Statistics said average weekly ordinary time earnings (AWOTE) climbed by 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.

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

Aware Super’s General Manager – Advice, Peter Hogg, said the increase in contribution caps next financial year would be particularly beneficial for older workers as they were more likely than their younger counterparts to be able to make extra contributions. The higher caps could also prove valuable to people transitioning to retirement and retirees under 75, he said.

“While we know that many of our members are struggling with cost-of-living pressures at the moment, the increase in contribution caps will be heartening news for many older members who want to get their finances in the best possible health as they prepare for or settle into retirement,” Mr Hogg said.

“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.

“Wages have been climbing at a relatively quick rate in recent years but contribution caps, because of the way they’re indexed, haven’t changed since 2021, so really we’re 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.”

Concessional super contributions, which include compulsory super payments from employers, 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. Under ATO rules, super members can make use of unused cap amounts from as long ago as five years, depending on their total super balance.

Many people also like to make non-concessional contributions to their super – top-ups from money they’ve already paid tax on, such as take-home pay – because investment earnings in super are generally taxed at only 15 per cent instead of their marginal tax rate.

Mr Hogg noted the ATO allowed super members to bring forward the equivalent of one or two years of their annual non-concessional cap allowance from future years, subject to some criteria. “The increase in the non-concessional cap will be particularly useful for people in a position to make use of the bring-forward rule,” he said.

He cautioned that making use of the higher caps – both concessional and non-concessional – wouldn’t necessarily be the best course of action for everyone. “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.

“If you’re unsure of the best strategy for your circumstances, guidance and advice can help. Super funds such as Aware Super provide advice to members on their superannuation for no extra cost, and more complex advice for a fee, so call your fund to see what help they can offer.”

Media enquiries: Peter Taylor, media@aware.com.au

Visit the Aware Super Newsroom for the latest news, announcements and insights from Aware Super.