Update on local government additional contribution rules from 1 July 2024
1 July 2024
Additional contributions to super for permanent council employees have become optional but members are being urged to seek advice to understand the long-term implications.
Permanent local government employees with superannuation accumulation accounts will be able to opt out of making additional contributions on top of their employer’s Superannuation Guarantee contribution from 1 July 2024.
The changes, announced by Queensland Government, replace the previous regime which required local government employees to make additional contributions of 5% or 6%, depending on their employer, to their superannuation.
Local government will continue to pay the employer contribution to permanent employees which is generally either 12% or 14% depending on your employer.
There will not be any changes to an employee’s additional super contributions unless they explicitly choose to make this change by notifying the payroll department at their employer.
An employee who has opted out of the additional contribution is free to resume making additional contributions at any time.
While the option to opt out provides flexibility, continuing to make additional contributions can significantly enhance your retirement savings. These contributions are an effective way to build a more substantial superannuation balance, which can provide greater financial security in retirement.
Why are the changes being made?
The changes are being enacted to align council superannuation arrangements with recent changes to the Queensland Government scheme and with Commonwealth legislation aimed at simplifying the system.
The changes also include updating the definition of ‘salary’ to match the Commonwealth’s definition of ordinary time earnings (OTE).
Transitional arrangements are in place to ensure that employee take-home pay is not reduced by the change to the definition of salary. Councils are being given time to review their payroll arrangements to ensure that their employer contributions align with the new definition of salary by 1 July 2025.
Seek financial advice
Brighter Super urges members to seek financial advice on the impact of reducing additional contributions. Reducing additional contributions could dramatically reduce a member’s final superannuation retirement balance and increase the tax they pay during their working lives.
Concessional superannuation contributions up to $30,000 are taxed at 15% (2024-25).
Under the new tax rates and thresholds for 2024-25, income lower than $18,200 is tax free, income from $18,201-$45,000 is taxed at 16%, income from $45,001-$135,000 is taxed at 30%, income from $135,001-$190,000 is taxed at 37% and income over $190,000 is taxed at 45%1. More information can be found on the Australian Taxation Office website.
While reducing additional contributions might produce a small short-term gain in weekly or monthly take home pay, it could reduce a members’ final retirement nest egg by tens or even hundreds of thousands of dollars depending on their age.
Brighter Super projections underline the importance of making additional contributions. For example, a local government worker aged 49 earning $100,000 could retire with $96,7262 more at the age of 65 by continuing to make a 6% additional contribution rather than opting out.
Find out how you can supercharge your super balance with additional contributions.
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Example 1: Lucy
Lucy is 25, and has a salary sacrifice arrangement with her employer, who currently contributes 6% of her salary (before tax) to her super.
As a result of cost-of-living pressures Lucy decides to cease her salary sacrifice arrangement with her employer with effect from 1 July 2024. Her expected earnings from her employer for 2024-25 are $75,000.
By ceasing her salary sacrifice contributions Lucy will increase her take home pay from 1 July 2024 by $3,060 per annum for the 2024-25 financial year3.
However, if Lucy continued with her 6% (before tax) salary sacrifice throughout the rest of her working life, by the time she reached age 65, these contributions could have grown her super by an impressive $237,7672.
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Example 2: Tom
Tom is 49, and has a salary sacrifice arrangement with his employer, who currently contributes 6% of his salary (before tax) to his super.
As a result of cost-of-living pressures, Tom decides to reduce his salary sacrifice contribution to 3% per annum (before tax) with effect from 1 July 2024. His expected earnings from his employer for 2024/25 are $100,000.
By reducing his salary sacrifice contributions to 3% (before tax) Tom will increase his take home pay from 1 July 2024 by $2,040 per annum for the 2024-25 financial year3.
However, if Tom continued with his 6% salary sacrifice throughout the rest of his working life, by the time he reached age 65, these contributions could have grown his super by $48,3722.
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We’re here to help
If you would like to discuss how these changes might affect you, our team of superannuation specialists and financial advisers can help you.
Talking to a financial adviser can help you to create a plan for achieving your financial goals. If you already have a financial adviser, they can help you make informed decisions about your super.
Brighter Super’s in-house team of financial advisers is here to help you if you do not have a financial adviser. Find out more about financial advice or call us on 1800 444 396 to discuss which type of advice would suit you best.
Alternatively, please contact your HR or payroll department for more information and to discuss your options.
1 Rates do not include the Medicare levy of 2%.
2 The projected super balance was calculated using the Moneysmart Superannuation Calculator as at 26 June 2024. The figures have been obtained using the calculator’s default assumptions which include but are not limited to inflation, investment returns, fees and contribution timings. Further information about the assumptions can be accessed at https://moneysmart.gov.au/how-super-works/superannuation-calculator. The amounts projected are estimates only provided by the model and are not guaranteed.
3 The Moneysmart Income Tax calculator was used to determine the after-tax incomes in each scenario, based on the 2024-25 financial year income tax rates including the Medicare levy. The calculator and its assumptions can be accessed at https://moneysmart.gov.au/work-and-tax/income-tax-calculator.
LGIAsuper Trustee (ABN 94 085 088 484) (AFSL 230511) (the Trustee) as trustee for LGIAsuper (ABN 23 053 121 564) (RSE R1000160) (the Fund) trading as Brighter Super. Brighter Super products are issued by the Trustee on behalf of the Fund. Brighter Super may refer to the Trustee or LGIAsuper as the context may be.
This article provides general information only and does not take into account your individual objectives, financial situation or needs. As such, you should consider whether it is appropriate in light of your own objectives, financial situation and needs prior to making any decision. You should consult a licensed financial advisor if you require advice which does take into account your personal financial circumstances. You should also obtain and consider the Product Disclosure Statement (PDS) before making any decision to acquire any products. A Target Market Determination (TMD) is a document that outlines the target market a product has been designed for. Find the PDSs and TMDs at www.brightersuper.com.au/about-us/governance/pds-and-guides.
