How Superannuation Is Different for the On-Demand Workforce
Consider how much traditional employees are having stashed away into their super every year by their employer because of the 9.5% super guarantee (SG). Whilst the freedom and flexibility of on-demand employment has its perks, enjoying SG contributions isn’t one of them. If you want 9.5% of your income to go into superannuation, it’s up to you to put that money there.
For traditional employees, an employer pays the super guarantee, which is required by law. As an example, for an employee earning $58,000 annually, their employer would contribute an additional $5,510 to the employee’s super fund every year. At our 40 years and 6% interest rate assumption, this would turn into a nice sum of $909,413, almost.
This money is taxed at a rate of 15%. So, the $5,510 goes to super, the government takes its share, and the rest sits and earns compound interest, and then interest on interest.
The employer takes the tax deduction for the super guarantee contributions and the employee can take a ‘set it and forget it’ approach to their retirement savings, unless they choose to increase their super more with salary sacrificing and after-tax contributions. Concessional contributions – the pre-tax contributions from SG and salary sacrificing – can’t exceed $25,000 per year.
It’s a straightforward system. It works. And it ensures millions of Australians have enough money when they stop working instead of struggling to get by with a combination of the age pension and meagre savings.
As an on-demand worker, you may not have the safety net of super guarantees. That doesn’t mean you don’t have the capability to still build a sizable nest egg. The government still lets you make concessional contributions with the same tax benefits as traditional workers. You can make contributions of up to $25,000 from your pre-tax income and then claim this amount as a tax deduction. The money goes to your super, where it will be taxed at the same 15% rate that all concessional super contributions are taxed at. The difference between your personal contributions and the SG contributions is that you get to claim the tax deduction, not an employer.
You can contribute more than the $25,000 concessional cap – up to $100,000 in non-concessional super contributions. This is money from your after-tax income or savings that you decide to put into your super.
What About Government Super Contributions?
Don’t forget, depending on your income, you may also be able to benefit from government co- contributions. If your income is less than $51,813 annually, and you make after-tax super contributions, the government will make a co-contribution. The maximum contribution is $500, which you are eligible for if you earn less than $36,813 and contribute $1,000 to super with after- tax income (the government pays 50 cents for each 1 dollar you contribute). Up to $51,813, the government will pay less than $500, at the same 50 cents to the dollar.