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The pros and cons of making contributions to your super

Super contributions can boost your savings, but how do they compare to other investments and what are the tax implications?

Last updated: 20 July 2020

Need to know

  • One way to make the most of your money is to put any you have left over into your super
  • For many people, this is a tax-effective way to save for the long term

In response to COVID-19, the government has introduced a scheme where people can access up to $20,000 from their super to deal with the economic impact of the pandemic. (See our guide: Should you access your super early? Here's what to consider)

Super Consumers Australia has received reports from other consumer organisations that some people have accessed their super early as a safety-net and now find they won't need it.

How can this money be invested? Can it be put back into super? What are the tax implications for the different options? 

In considering whether to put this money (or any other savings you have) into super, there is a clear trade-off. You can earn more in the long term and benefit from government incentives in place to encourage super contributions, but you generally won't be able to access the money until you retire.

Pre-tax contributions

This is also called concessional contribution or salary sacrificing.

If you're still working, you can pay some of your pre-tax salary directly into your super. This means that unlike after-tax contributions, it's never deposited into your account as wages.

For people on higher incomes there are some big tax advantages to these contributions. These types of contributions will reduce your taxable income, which could mean you pay less income tax. Making these contributions will usually save you on tax if you're earning more than $37,000 per year.

For people on higher incomes there are some big tax advantages to these contributions

These contributions will be taxed at 15%, which for a lot of people is lower than the usual tax rate you'll pay on your income.

You can make contributions up to a total of $25,000 a year before additional tax may apply. This amount includes both the amount your employer has contributed (i.e. the 9.5% of your salary they pay into your super) and any additional contributions you have made.

For self-employed people, pre-tax contributions are also tax deductible.

How do I make a pre-tax contribution? 

Talk to your employer in the first instance to see if they offer this and for details on how to go about it.

After-tax contributions to your super

These may also be called non-concessional contributions or personal contributions.

This is where you choose to top up your super account (i.e. on top of the compulsory contributions made by your employer), either from any savings you have or from the wages you receive. 

You can make these contributions on a regular basis (e.g. after you get paid every fortnight) or as a one-off payment.

You don't have to do anything to get this money; the tax office will pay it straight into your super

One benefit of making after-tax contributions is that the government will match your contribution up to $500 for people on lower incomes. 

People who earn less than $52,697 a year (before tax) will get this co-contribution. You don't have to do anything to get this money; the tax office will pay it straight into your super. 

An important point is that you can generally claim these contributions as a tax deduction.

There is a limit on how much you can contribute to your super after-tax. This limit is currently $100,000. You can claim contributions up to $25,000 as tax deductions. 

How do I make an after-tax contribution? 

Get in touch with your super fund for further details. You'll need to have your tax file number on record with your fund before you can make one of these contributions.

To claim these contributions as deductions, you'll need to complete the 'Notice of intent to claim or vary a deduction for personal super contributions' form, send it to your super fund and get an acknowledgment.

How other investments are taxed

If you keep any money in a bank account – including a term deposit, a managed fund or a foreign account – any interest you earn will be taxed as income.

People earning less than $18,200 per year have a tax rate of zero. For every dollar earned above this level (between $18,201–$37,000) you pay 19 cents in tax. You'll pay up to 45% tax on some income, depending on how much you earn. 

Most people also have to pay a 2% Medicare levy in addition to their income tax rate.

Given super contributions and earnings have a maximum taxation rate of just 15%, for most people there are big savings to be had by putting extra money into super. 

super contributions and earnings have a maximum taxation rate of just 15%

Bank accounts are offering historically low interest rates at the moment and any savings held there will only grow very slowly. It's also possible any money kept in the bank won't keep pace with inflation, meaning your savings will go backwards slightly in real terms.

What if I want to be in control of where my money is invested?

If you choose to put money back into your super, you can choose different strategies to suit your age, goals and level of savings.

If you're interested in investing in shares, many super funds allow you to choose particular industries to invest in or even to select individual shares. Remember, however, that picking shares which outperform the market is very difficult even for experienced investors.

How accessing money now will eat into your retirement savings

Super Consumers Australia has previously calculated the cost of taking $20,000 out of your super. 

We've calculated the value of the withdrawal in today's dollars for different age groups. This table shows the impact for different age groups:

Impact on balance at retirement of $20,000 withdrawn from your super

 Age  Value








The effect of compound interest and the ability to benefit from the overall growth of the share market means that you'll likely lose considerably more than the amount you take out from your nest egg.

This year's temporary scheme is not your only chance to access your super early

The early access scheme stays open until 24 September this year. Most requests are processed in a couple of days. This means that there is no need to take your super out if you don't need it but want it in your bank account in case unexpected costs arise.

But once the temporary early access scheme in response to COVID-19 ends, there are still other ways you can access your super early in an emergency. 

The Australian Taxation Office sets out information on the circumstances where you can withdraw some of your super, including:

  • medical treatment
  • payments on home loans or council rates where you could lose your home
  • disability modifications to your home or vehicle (for yourself or your partner)
  • palliative care  
  • expenses involved with the death and or funeral of your dependent.

People who have made voluntary contributions to their super can also use some of this money (and earnings on these contributions) to help buy their first home. 

We have previously outlined the factors to consider before you make an application to access your super early

This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.

We care about accuracy. See something that's not quite right in this article? Let us know or read more about fact-checking at CHOICE