Its time to grow your superannuation and not just rely on your employer’s contributions.

Make your super work for you

Making additional contributions into your super, on top of your superannuation guarantee contributions (employer contributions) can really boost your retirement income.

There are a number of easy ways that you can make additional contributions to your super account including:

Salary Sacrifice Contributions

Salary sacrifice is an arrangement between you and your employer, whereby you agree to forgo part of your before tax salary and contribute it to your super. If you make super contributions through a salary sacrifice agreement, these contributions are taxed in the super fund at a maximum rate of 15%. Generally, this amount of tax is less than what you would pay if you did not enter into a salary sacrifice agreement and instead were subject to PAYG withholding tax on your earnings.

However, the concessional tax treatment is limited to a set amount of contributions made each income year. The concessional contributions cap is $25,000 pa regardless of age. This amount is the total of all before tax contributions and is indexed each year.

Where concessional contributions exceed these caps, excess concessional contributions tax is payable at a rate of 31.5% (this is on top of the 15% tax already paid by the fund). Excess concessional contributions tax is payable by the individual.

To avoid paying a higher rate of tax on your super contributions, you should ensure that your salary sacrificed amount and any other concessional contributions to your super fund, such as additional employer super guarantee payments or employer payments above the super guarantee, do not exceed the cap amount.

Salary Sacrifice is available at your employer’s discretion, so you will need to check to see if it is available.

Member Voluntary Contributions

Member voluntary contributions are non-concessional contributions. They are paid out of your after-tax salary and are therefore not taxed when deposited into your super account nor taxed if you withdraw your super benefit as cash when you retire.

Making voluntary contributions can really boost your super for retirement. There are many ways in which you can make voluntary contributions including:

• Lump sum contributions each year;
• Payroll deductions;
• Regular monthly contributions – similar to a savings plan; and
• Anytime that best suits you.

It is important to remember the amount of member voluntary contributions you make in a financial year without being subject to additional tax is capped, subject to the ‘bring forward’ rule explained below. The following table outlines what cap applies to you:

It is time to get to know one of your most important investments, your super. In this article you will learn about what makes your super Islamic and how we invest Islamically, straight from our portfolio management team. 

Did you know that over 1/3 of your super may fund industries against your values? 

You might be surprised but the receiving of interest is strictly forbidden in Islam. If a positive, fixed, predetermined rate is attached to the maturity (i.e. a guaranteed rate regardless of the performance of the investment), it will be considered riba and is prohibited. 

Unfortunately, most superannuation funds invest on average 34% of your super in interest-bearing investments, while the remaining investments are conducted without any regard for Islamic investment principles, they invest in industries such as alcohol, pig products and many more sectors that are non-sharia compliant. 

At Hejaz, you can be rest assured that your superannuation savings will be invested into a Sharia compliant managed fund, the Global Ethical Fund. By choosing Hejaz Islamic Super services, you are choosing to invest Islamically and in accordance to your values.  

The creation of the Hejaz Islamic super service portfolio 

This is how we ensure that our portfolio of investments is compliant. Firstly, our Islamic investment experts analyse companies in Australian and overseas share markets (as well as gold and property investments) to create a universe of stocks that passes our strict Islamic investment criteria. Then, our investment team uses this Islamically screened universe to create the Hejaz Islamic Super portfolio. The investment team selects the Islamic stocks they believe will produce superior financial returns. Finally, our portfolio team actively looks for investments that will yield positive returns whilst monitoring current investments. 

4 mandatory investment screenings for sharia compliance 

• Tainted Income: Income earnt from non Islamic dealings must be below 5% of total revenue. 
• Debt/ Market Cap: A company’s debt must not exceed 30% of thier market cap. 
• Liquidity: Account receivables should be less than 49% of total assets. 
• Business Activity Screens: Businesses such as banks, alcohol, media, interest, military and pig products are not permissible under the Sharia. 

At Hejaz we fund industries that are Sharia compliant and industries that help make a better tomorrow, such as healthcare, utilities, technology, telecommunications, infrastructure and property.  

So, where are you investing? Is your super fund investing against your values? Is your fund performing?  

Put your super in Australia’s Best Performing Islamic Super Option FY19/20*. We invest according to your lifestyle and values and we perform in good and bad times. 

This article answers 5 frequently asked questions about superannuation. If the ins and outs of superannuation leave you confused, the answers to these frequently asked questions will help you understand the basics. 

How much do I need to retire? 

According to the Association of Superannuation Funds of Australia (ASFA), a couple requires savings of $640,000 if they wish to enjoy a ‘comfortable’ lifestyle in retirement. For a single, the figure is $545,000. 

Due to support from the age pension, a single or a couple can fund a ‘modest’ lifestyle with savings of just over $70,000 at retirement. 

How is my superannuation taxed? 

Broadly, contributions are categorised as either concessional or non-concessional. 

Concessional contributions are contributions on which an employer or an individual has claimed a tax deduction. 

Non-concessional contributions are made from after-tax income. They include many personal contributions and government co-contributions. 

Concessional contributions are taxed at 15% within the superfund, with a tax offset available to low income earners. Non-concessional contributions are not taxed within the fund. 

Investment earnings are taxed at 15% in the accumulation phase. Over age 60, earnings in the pension phase, and any payouts from the super fund, are tax-free. 

How can I contribute to superannuation? 

If you are over 18, employed, and earn more than $450 per month your employer will contribute 9.5% of your ordinary time earnings to super. You can further boost your super by: 

• Asking your employer to make concessional salary sacrifice contributions from your pre-tax income. 

• Making personal contributions from your after-tax income. Subject to set limits you may be able to claim a tax deduction for these contributions in which case they will become concessional. If no tax deduction is claimed they will be non-concessional. 

• Low to middle income earners who make a personal non-concessional contribution may receive up to $500 as a government co-contribution. 

• If you contribute on behalf of a spouse who earns less than $37,000 a year, you can claim a tax offset of up to $540. 

• A special ‘downsizing’ contribution is available to over-65s who sell a home. 

Age limits and work tests may apply to some types of contribution. 

When can I access my superannuation? 

• When you turn 65, even if still working. 

• When you reach preservation age (between 55 and 60 depending on date of birth) and have retired. 

• If you start a transition to retirement (TTR) income stream. 

• If you face severe financial hardship, specific medical conditions or under the first home super saver scheme. 

Who can I leave my superannuation to? 

If your super fund allows binding death benefit nominations, you can elect to have your superannuation paid to your legal personal representative. The money will then be distributed as instructed by your Will. Alternatively, you can instruct your fund trustees to pay your death benefit to one or more of your ‘dependents’. Under superannuation law these are: 

• Your spouse (includes same-sex and de facto partners). 

• Children. 

• A financial dependent. 

• People you had an interdependency relationship with. 

Without a binding nomination, your super fund’s trustees decide which dependents will receive the death benefit. They will be guided, but are not bound by, any non-binding nomination. 

How do I make the most of my superannuation? 

Superannuation remains, for most people, the best vehicle within which to save for their retirement. However, it can be complicated and there are numerous rules to navigate. 

That creates challenges, but it also generates opportunities, many of which can add thousands of dollars per year to your retirement income. 

Those are the 5 frequently asked questions about superannuation. Ready to unearth those opportunities and make the most of your superannuation? Now is a perfect time, visit https://www.hejazfs.com.au/australias-best-islamic-super-option/ 

to learn more about Australia’s Best Performing Islamic Super Option FY19/20*. 

Salary sacrifice v.s. personal contributions to super. This article discusses the differences between salary sacrifice and personal contributions to super. It uses a case study to explain the potential differences. 

If you are an employee, there are two ways in which you can optimise the tax-effectiveness of your additional super contributions:  

• opt for a salary sacrifice arrangement, whereby your employer makes additional superannuation contributions beyond the compulsory superannuation guarantee (SG) amount from your pre-tax earnings and reduces your salary accordingly; or 

• make a personal contribution and claim a tax deduction when you submit your tax return. 

Generally, higher income earners gain the greatest benefit from either of these strategies. Lower income earners may be better off not claiming the tax deduction and receiving a government co-contribution if eligible.  

Which option?  

For starters, employers don’t have to offer salary sacrifice. If they don’t, claiming a tax deduction is the only option.  

Another thing to look out for: if salary sacrifice is available, will your employer still make SG payments on your pre-sacrifice salary? Legally, employers only need to pay SG on the actual salary amount, so for every $1,000 of salary sacrifice you would lose $95 in SG contributions. In this situation, you will most likely be better off claiming a tax deduction.  

Fortunately most employers do the right thing and don’t reduce their SG contributions. The federal government has also announced plans to ensure salary sacrifice does not result in a reduction in SG payments. If this happens, it will pretty much level out the playing field between salary sacrifice and tax-deductible personal contributions, but some subtle distinctions remain.  

Let’s look at Jenny and Brian. They both earn $120,000 a year, and want to contribute an extra $12,000 pa ($1,000 per month) to superannuation as concessional (pre-tax) contributions. Jenny opts for salary sacrifice and will receive SG contributions based on her pre-sacrifice salary. Brian decides to make his own contributions and later claim them as a tax deduction.  

Both will see their overall annual income tax bill1 drop by $4,680. After allowing for 15% tax on the super contributions, they are both better off by $2,880 for the year.  

The key difference is that Jenny will enjoy her tax benefit each payday. Brian needs to wait until the end of the financial year and submit his tax return before he can receive any benefit from his choice.  

On the other hand, Brian’s regular pay will be more than Jenny’s as his gross income remains at $120,000 pa compared to her $108,000. This gives him more flexibility. For example, he can wait to make his entire contribution just prior to the end of the financial year – if he hasn’t been tempted to spend it in the meantime. However, if he makes regular contributions to his super fund, his net disposable income each month will be lower than Jenny’s. Only when he receives any tax refund might they be back on equal terms.  

Beware the rules 

While the greatest benefit of extending tax deductibility on personal contributions goes to employees who are unable to access the salary sacrifice option, it’s still a positive move that provides everyone with flexibility and choice. However, whether you opt for salary sacrifice or claiming a tax deduction, there are rules to be followed.  

Be sure to consult your financial planner about the best superannuation contribution strategy for you. Or give us a call at 1300 043 529 and we can discuss about how we can help you build your wealth in ways that aligns with your values.

Learn more about our Islamic financial products here.

The government regularly reminds us that each Australian must take responsibility for funding their future. Regardless of when you will be able to access your super, or when you choose to stop working, you need to be aware of how your superannuation is being managed and if the final balance will be sufficient when you’re ready to retire… and for the years beyond.

As a super fund member, it is your responsibility to manage your contributions (over and above your employer’s SG), regardless of whether they are being invested into a retail fund, corporate fund or your own self-managed super fund.

Superannuation is a tax structure but it should be treated like a valuable financial asset. The fundamental principles of financial planning prescribe that individual tailoring, based on your needs, objectives and personal circumstances, is paramount to ensuring you have enough money to enjoy your retirement years.

It’s a recipe for disaster to think that once you have established a superannuation account and your employer’s contributions are flowing in, you can forget about it for the rest of your working life. Financial markets will change, your own financial position will change, and your objectives and retirement plans may change, so it’s crucial that you review your super regularly.

Super needs are different

Additionally, it’s foolish to believe that a “one size fits all” approach with no personal advice on contribution levels or transfer issues will help you achieve your goals.

The amount of money in your super fund when you retire will determine what type of retirement you will enjoy. So, it is you, nobody else, who must take responsibility for determining what your needs are and work towards meeting them. That could mean making increased contributions after a certain age to bolster your savings or deciding who your beneficiaries will be if you don’t make it that far.

Super tax

Did you know that you may attract tax penalties by making large contributions to superannuation or exceeding annual limits? Don’t panic; this is something your financial adviser can help you manage and still meet your accumulation strategy.

These are critical issues that you should take the time to discuss with your financial adviser as individual advice and tailoring is essential. Superannuation is your investment for your future, so it is important that you review your super regularly.

Learn more about Australia’s Best Performing Islamic Super Option here. At Hejaz Financial Services, our investments are Sharia Compliant and we perform in good times and bad times.

With millions of people participating in the government’s early release of Super campaign, financiers and lenders are not looking at this very favourably. Many have sought to access their super and use this as a deposit for their first home, without realizing the pitfalls of this strategy.

From a financing perspective, there are a number of reasons why a prospective borrower can be denied a home finance application, such as having a poor credit rating or not having the correct documentation. Another big reason is not having a high enough income or a stable job, and if you’ve had your working hours reduced to the point where you’re eligible to withdraw super, you might be rejected for finance anyway.

If someone has accessed their super with the intention of topping up their deposit so that they can purchase a property in the near future, they should keep in mind that financiers are unlikely to look favourably upon this as accessing super would indicate financial hardship and lack of cash flow stability. If you’re eligible to make the withdrawal under the COVID-19 Super release scheme, it means that your hours or income has dropped – or you’ve lost work altogether. This directly impacts your capacity to borrow, if you’re looking to enter the housing market over the coming 18-24 months.

Ideally, one should be keeping their super where it is – it’s designed for retirement, not as a deposit for their first home.

Read our weekly articles here or learn more about our Islamic products here.

If you are eligible to apply for early access of super under the COVID-19 provisions, here is an idea of what the withdrawal will mean to your long term situation.

As the COVID-19 virus took a sledgehammer to the economy, the federal government rapidly introduced a range of initiatives to help individuals who lost income as a result of the measures taken to control the virus.

One of those initiatives was to allow qualifying individuals access to a portion of their superannuation to help them meet their living costs. Withdrawals are tax free and don’t need to be included in tax returns. Most people can withdraw up to $10,000 in the 2019/2020 financial year and up to a further $10,000 in the 2020/2021 financial year.

For many people this early access to super will prove to be a financial lifesaver, but for others the short-term gain may lead to a significant dip in wealth at retirement. And the younger you are, the greater that impact on retirement is likely to be.

Alexander provides an example that many people will be able to relate to. He’s a 30-year-old hospitality worker, and due to the casual nature of his recent employment he is not eligible for the JobKeeper allowance. He is eligible to apply for early access of his super under the COVID-19 provisions, however before going down this route he wants an idea of what the withdrawal will mean to his long term situation.

Taking the max

Much depends, of course, on the future performance of his superannuation fund. However, if Alexander withdraws $20,000 over the two financial years, and if his super fund delivers a modest 3% per annum net return (after fees, tax and inflation), then by age pension age (currently 67), Alexander will have $39,700 less in retirement savings than if he doesn’t make the withdrawal.

At a 4% net return, he will be $65,360 worse off if he makes the super withdrawal.

But that’s not the only disadvantage for Alexander. A smaller lump sum at retirement means a lower annual income. If Alexander draws down his super over a 20 year period, at a 3% net return, he will be around $2,670 worse off each year as a result of making the withdrawal. Over 20 years that adds up to a total loss of $53,375. At a 4% return, his youthful withdrawal will cost him over $96,000 by the time he reaches 87.

Reducing the risk

On the plus side, if Alexander is eligible for a part age pension when he retires, his smaller superannuation balance may see him receive a bigger age pension.

There are other things Alexander can do to reduce the financial consequences of accessing his super early. One is to only make the withdrawal if he absolutely has to. Or if he does make the withdrawal, to use the bare minimum and, when his employment situation improves, to contribute the remaining amount back to his super fund as a non-concessional contribution.

COVID-19 is adding further complexity to our financial lives, so before making decisions that may have a long-term impact, talk to your financial adviser.

Read our weekly blog posts here or learn more about our Islamic superannuation, investments and home finance here.