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19Feb

Islamic Account Based Pension

February 19, 2021 hejazfs Superannuation 87

Take a deeper look into an Islamic Account-Based Pension, retire at 65 but don’t retire your money. Whether retirement is just around the corner or still a few years away, we can help you get the most out of your Super.

 

Top up your age pension with your Super

The Hejaz Islamic Account-Based Pension is designed to help you enjoy financial independence in retirement by paying you a regular income throughout the year at the frequency you choose. This may give you more halal investment returns through your retirement and helps boost how long your savings last, once you’ve reached your preservation age.

 

What is an account-based pension?

An account-based pension is an alternative option to receiving super as a lump sum. Opening an account-based pension means receiving regular income payments while the balance of your super stays invested – giving you the potential for more investment returns throughout your retirement.

 

Benefits of an account-based pension

  • Turn your Super into income

Receiving regular payments just like when you were working while the balance of your Super stays invested means you can enjoy your retirement. You can also use the income paid from your Hejaz FOC pension account to top up the Government Age Pension payments you’re eligible for.

 

  • Flexibility and control

You can set up your account in a way that suits you with the amount and frequency of your income payments – you’re never locked in. You can withdraw extra money to pay for bills, holidays, or other big-ticket items at any time.

 

  • Keep your Super working for you

Keeping your money invested once you’re retired allows your savings to continuously grow.

 

  • Enjoy tax savings

Investment earnings on age pensions in the retirement phase is non tax payable. As your savings continue to grow, there is no tax payable to that amount.

 

We know that making the transition to Islamic pension can be new and that is why we are here to keep it simple and support you. The transition is easy, apply online in less than 5 minutes. Retire Islamically with Australia’s first and only Islamic Pension Option here. If you wish to speak to one of our qualified financial advisers call 1300 043 529.

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03Feb

Super: Making the right choice

February 3, 2021 hejazfs Superannuation 87

One of the best things about living in Australia is the high level of choice we have in everything from milk to superannuation funds. For many of us, having a choice of where our super will be held is an important part of our investment management and a decision that should not be made without sufficient research.

This feature article details all of the options to take into account before changing super funds. It suggests investigation into investment options, fees, insurance, range of services, etc, and then offers action steps for each point. It can also be used as a detailed checklist and action plan to review your current super fund.

Whether you are changing employment or you’re not happy with the fund your employer offers, below are several key points to consider in selecting a super fund to meet your needs. Also listed are seven actions you can take to help yourself on the path to making the right choice for your future.

 

Action 1 – Ask your employer if you can choose your own super fund.

It’s your super

There is a range of options available for investing your super – retail funds, industry funds, corporate and public sector funds; or you can choose to manage your own. The choice of fund may depend on your employer or industry. Regardless, this is your money that is being invested for your future use, so it’s crucial that you take a keen interest in your superannuation.

 

Action 2 – Ask your super fund what investment choices they offer.

Investment options

Super is a tax-effective way to invest. Your super fund should give choices of investments – after all, one way of investing is unlikely to suit everyone. How much choice you need depends on your personal circumstances such as how much money you have in your fund, your attitude to investing, and how much involvement you wish to have in making investment decisions.

Does your fund provide suitable options? Are you invested in the most appropriate way? Your choice can make a big difference. There are generally five or six different investment options which can provide you with varying levels of exposure to each asset class. For example, a capital secure fund may invest your money predominantly in bonds and cash. A balanced or diversified fund on the other hand, might invest your money partly in bonds, cash and partly in shares and property.

 

Action 3 – Ask your super fund what fees they charge.

Fees

All super funds will charge fees in some way. The key issue is not the fees but the value provided by the fund. Like all things “you get what you pay for”. Some simple funds are cheaper but may not offer the options and facilities you need. Some funds may be too complicated or expensive for your needs.

Do you use the facilities offered by your fund? Are you paying for things you don’t need or missing opportunities from a fund that is too basic?

 

Action 4 – Determine what personal insurance cover you need. Ask your super fund about what insurance is offered and do the sums. Then talk to your financial adviser.

Insurance

If you have insurance cover via your superannuation you probably think you’re adequately covered, yet if something bad were to happen, you might be in for an unpleasant surprise – and by then it might be too late.

Many super funds provide a simple, low-cost and tax-effective way to get insurance cover in the event of death or disability but you need to determine if the current level is appropriate to you. And review the cover at each stage of your life.

Another point to remember is that a portion of your super contributions is used to pay the insurance premiums. This means that you’re not contributing as much as you believe.

What personal insurance cover do you have now? Is it too much or not enough? Is it better to pay the premiums personally or from your super fund?

 

Action 5 – What other services does your super fund offer?

Range of services

Super funds have become more competitive and offer a wide range of services to make it easier to keep track of your investment and tailor it to your needs.

Can you access your account online? How easy is it to make contributions or switch investments? How often does your super fund send you statements, updates or news about your fund? What education services such as seminars, online calculators and guides are available? How easy is it to speak to a human being?

 

Action 6 – What other important choices does your super fund offer?

More super choices

Your superannuation needs to provide for your future – the planned and the unexpected. For most people their super will pay an income when they retire as a pension or “retirement income stream”. When you die the super fund will pay out your super to your dependents or your estate. In some funds, you can advise or direct the fund as to how your super is paid out.

Does the fund allow binding death benefit nominations? Does the fund provide a range of pensions with suitable investment options?

 

Action 7 – If you have “chosen” the default option, will it meet your individual needs?

Default options

Super funds have to invest, provide insurance and other services for fund members who make no choice – this is called the “default” option.

How will your money be invested if you make no choice? What insurance cover will you have?

 

As you can see, choosing the right super fund is a major decision. There is a lot to consider. If it all seems too hard, give us a call at 1300 043 529 and we can evaluate your options and help you make the best choice for your specific needs.

At Hejaz Financial Services, our Islamic Superannuation has a range of investment options designed to help you achieve your long term goals. We are also known to have outstanding performances and we keep our costs low to maximise your Super.

 

Join Australia’s Best Performing Islamic Super Option FY19/20* today!

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26Nov

A lifetime of Superannuation

November 26, 2020 hejazfs Superannuation 88

A lifetime of superannuation – and it’s not just about retirement!

The superannuation guarantee cannot be relied upon to provide a comfortable retirement but not everyone wants to retire! A different way to look at superannuation is that planning ahead will allow more choices later in life. It provides a guide to possible strategies through the different stages of working life.

The key to life is living, not retiring, but there may come a time in your life when you want to change what you’ve been doing and either stop working completely, or take a long holiday and work out what’s next. To be able to have this choice though, it’s imperative that you plan ahead, even if you think retirement is for everyone else.

As a rule of thumb, it is suggested people should aim for a retirement income of between 50% and 70% of pre-retirement salary/wages. Based on this premise, it is estimated you will need to save around 15% of your income for 40 years. The problem here is that your employer is only compelled to provide superannuation contributions for you at the current rate of 9.5% of your income per annum.

How might this be done? You can start contributing to super earlier in your working life, raise the combined rate of your super contributions to 15% by making personal contributions (keeping under the annual limits of course), and take heed of the following tips throughout your working life.

 

Young, single and independent

• Retirement is something your parents are doing but starting small and early lays the foundation for future choices.
• Maximise your government co-contributions—they can potentially add thousands to your super.
• Choose an investment strategy that suits your long-term risk profile.

 

A family and home finance repayments

• Your focus may be on repaying your home finance, but don’t forget your super entirely.
• Having home finance repayments and young children mean insurance is a top priority.
• Check eligibility for a tax offset on spouse superannuation contributions and government co-contributions.
• Review your investment strategy and risk profile.

 

The “in between” years

• A higher income and a smaller finance repayment open up the opportunity to boost your super but take care not to exceed contribution and balance limits.
• Find out if salary sacrifice could boost your super savings.
• Review your insurance cover and investment risk profile.

 

Retirement is looming (maybe)

• Over 55s enjoy some good incentives to contribute to superannuation but keep an eye on your total balance.
• Consider combining salary sacrifice with a transition to retirement pension if beneficial.
• Review your insurance cover, investment strategy and risk profile.
• Start comprehensive retirement planning or a new career focus.

 

Down tools or start anew

• You’ve made it. For retirees over 60, withdrawals and pension payments are tax free!
• Review your investment risk. Keep enough growth in your portfolio to ensure your money lasts as long as you do.
• Review your insurance.
• Stay active and enjoy life – or launch into your next career. There are no rules!

Remember, it’s never too late – or early – to start…

Learn more about Australia’s Best Performing Islamic Super Option FY19/20* here.

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12Nov

Consolidating your superannuation

November 12, 2020 hejazfs Superannuation 88

We understand as people we do not like change, and consolidating your superannuation may be new to you and that is why we are here to keep it simple and support you.

You’ve had a few jobs over the years and been paid superannuation during each one. You have a number of super funds and you forget all about them until the annual statements arrive by mail or pop up in your inbox. Now you feel worried and confused. What does it all mean? Have I got them all? Is my money still safe? Am I paying for multiple insurance policies? What should I do with all this paperwork? And the worst one – am I paying too much in fees?

The usual option is to simply forget about it until next year and then you go through all that confusion again. But there is a better way and if you act now you can sort it all out and potentially save a lot of money.

 

Here’s a 5 step process to locating your old super accounts and consolidating them into one fund.

Step 1

Collect all the superannuation statements you can find from your “bottom drawer” or print the latest from each of your online accounts.

Step 2

Make a time to meet with your financial adviser to go through the paperwork.

Step 3

Seek advice and select one superannuation fund that suits your needs.

Step 4

Sign transfer forms so your adviser can get the accounts rolled over to your chosen fund.

Step 5

Relax knowing that your super is all in one place.

 

At Hejaz Financial Services, we can find your old accounts for you by running a search with the ATO. If you’re looking to move your current super, you can also request a rollover by applying online (if you’re not yet a member) or by sending in our fact find form. We’ll get in touch with your other fund to transfer your super across.

Superannuation is too important to ignore. Getting your super under control can save you money in fees, cut down on paperwork, allow you to get an investment strategy in place, and help you keep track of your money.

The Australian Securities and Investment Commission (ASIC) reports that there are billions of dollars sitting in unclaimed or “lost” superannuation accounts with thousands more accounts added to the list each month. Inactive accounts with balances of less than $6,000 are transferred into the federal government’s consolidated revenue fund, so if you think you might have some old superannuation accounts that you haven’t touched in three years, don’t hand it over to the government, claim it!

Visit the ATO website for more information or check your MyGov account at www.my.gov.au.

Learn more about Australia’s Best Performing Islamic Super Option FY19/20* here.

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29Oct

Property Basics

October 29, 2020 hejazfs Superannuation 84

Property basics

Australians have long had a love affair with property. According to an Australian Bureau of Statistics report*, owner-occupied properties account for more than 40 per cent of household assets. In addition, almost 20 per cent of households own rental properties and holiday homes.

While direct residential property has been the traditional form of investment for many Australians, listed property trusts or real estate investment trusts (REITs) as they are also called have also risen in favour. REITs are pooled investments with units listed on the stock exchange, which hold a basket of properties in one or more of the property sectors.

The S&P/ASX 300 A-REIT Index provides the broadest coverage of property trusts listed on the Australian share market. It currently includes stocks across the retail, diversified, office, industrial and hotel and leisure sectors.

* Household wealth and wealth distribution in Australia, 2011-12, Australian Bureau of Statistics.

 

Risk/return characteristics

Property is a long-term investment with higher risk than fixed interest investments but lower risk, historically, than shares.

Direct property potentially offers steady rental income, tax breaks via negative gearing and capital appreciation. At the same time, it has a number of drawbacks. It takes time to buy and sell: Building a diversified property portfolio is an expensive exercise, your property exposure is limited to one sector, locating and keeping good tenants can be difficult and there is always ongoing care and maintenance. There is also the risk of capital loss and lower rentals during times of oversupply.

REITs provide many of the benefits of direct property investment without all the effort. Returns from listed property can include income in the form of rent received from the underlying properties and capital growth (or loss) from changes in the value of the share price. Listed property trusts also offer tax advantages to investors in the form of tax deferred income distributions.

Income-seeking investors often compare the income yields (income as a percentage of capital value) of real estate investment trusts to ten-year bonds when assessing investments. It’s important to remember that while yields are usually positive share prices can fall.

Some trusts have more stable income streams than others particularly those with quality tenants and secure lease terms in a good position.
REITs have similar risks to shares. As property trusts are listed, their share price can rise and fall in value and is subject to swings in investor confidence and other factors impacting sharemarket returns.

Individual REITs are also subject to risk, with investment quality and investment exposure varying across the sector. For example, trusts involved in development projects tend to be riskier with higher gearing levels than other sectors making them sensitive to interest rate rises.
Last decade, the REIT sector underwent considerable structural changes as the focus moved towards development, funds management and leverage opportunities, which increased the sector’s volatility level and risk profile. The sector has since realigned itself to its traditional long-term risk and return characteristics, which has restored its diversification benefits.

Accessing a diversified portfolio of REITs

Managed funds can invest in single or multiple listed property sectors. Some even include some exposure to direct property and international property securities. The main benefits of managed funds are that you can invest in properties you would not be able to access directly yourself and you can hold a diversified portfolio of properties for a relatively small initial outlay.

Those are some property basics that should help you gain a basic understanding on property investment.

 

To find out more about our investment products, click here.

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22Oct

Grow your Superannuation

October 22, 2020 hejazfs Superannuation 83

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:

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*Subject to the ‘General Transfer Balance Cap’ rule which requires your total superannuation balance to be less than this cap at the end of 30 June of the previous financial year ($1.6 million for the 2017/18 financial year).

^To access the ‘bring forward’ provision in the 2017/2018 financial year, you must have a total superannuation balance less than $1.4 million at the end of 30 June 2017, or $1.5 million to bring forward over a two year period. Please refer to the table below.

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Bring Forward Option

If you are under age 65 in a particular financial year, you will be able to ‘bring forward’ future entitlements to two years’ worth of non-concessional contributions. This means, for example, that a person under age 65 would be able to contribute voluntary after-tax contributions totaling $300,000 in one financial year without exceeding their voluntary after-tax contribution cap. Though once this limit is reached you could not contribute again until the three-year period has ended.

If you are 65 years or over, you will not be able to ‘bring forward’ your entitlements to make non-concessional contributions. Accordingly, if you are aged 65 to 74, you will have a non-concessional contributions cap of $100,000 for each financial year, provided you meet the ‘work test’ for each year a contribution is made. This test requires that you work 40 hours in a continuous 30-day period during the financial year.

If you are aged 75 years or over, you are not eligible to make voluntary contributions to your superannuation account unless the contribution is made within 28 days of turning 75.

 

Government Co-contributions

If you’re a low or middle-income earner, you can boost your super savings by taking advantage of the co-contribution payment from the government. This means the government will match your personal super contributions.

You may be eligible for the co-contribution if:
• you make an eligible personal super contribution by 30 June each year
• your total income is less than the higher income threshold of $51,813
• 10% or more of your total income is from eligible employment, running a business or a combination of both
• you are less than 71 years old at the end of the year of income
• you do not hold an eligible temporary resident visa at any time during the year
• you lodge your income tax return for the relevant income year.
• your total superannuation balance must be less than $1.6 million on 30 June of the year before the year the contributions are being made.
• you must no exceed your non-concessional contributions cap in the relevant financial year.

The amount of co-contribution for which you’re eligible depends on your income. If your income is equal to or less than the lower income threshold, you’re eligible for a full co-contribution. Above this income, the co-contribution reduces, until it cuts out at the higher income threshold.

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Spouse contributions

If you have a spouse, you can make spouse contributions on their behalf. Spouse contributions (up to a maximum of $3,000) currently receive an 18% tax offset to the contributing spouse if the eligibility criteria are met. The super contributions put into a spouse’s account will also be tax-free when withdrawn at retirement.

For you to be eligible to claim the maximum tax offset, your spouse must be earning $10,800 or less in a financial year. A reduced tax offset may be payable if your spouse earns $13,800 or less in a financial year. No offset is available to you if your spouse earns more than $13,800. The maximum amount of offset available in a financial year is $540.

If your spouse does not have an account with Freedom of Choice Super, they can join and receive the same great features and benefits that you do.

 

Join 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. 

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24Sep

What makes your super Islamic?

September 24, 2020 hejazfs Superannuation 79

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. 

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17Sep

Frequently asked questions about super

September 17, 2020 hejazfs Superannuation 82

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*. 

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27Aug

Salary Sacrifice V.S. Personal Contributions to Super

August 27, 2020 hejazfs Superannuation 71

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.

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