Can You Boost Your Super While Retired?
Written by: Jayden Scott | Advisory Team
Can you boost your super while retired? The answer is… it depends.
Unfortunately, it isn’t as simple as what some people may think and there are rules that you need to be aware of when you’re thinking of contributing more money into superannuation during retirement. In this blog, I will break down some of the key things you need to be thinking about, as well as some of the key rules you should be aware of before contributing to super in your retirement years.
Why Contribute to Superannuation During Retirement In the First Place?
Often when people are nearing retirement they will try and put as much money into superannuation so they can boost their nest egg as much as possible before they start to draw a pension from super.
Once they start their pension, most of their liquid cash and investments would ideally be sitting inside super. So why would we ever need to contribute to super again?
One common reason we see with our clients is they want to sell their home or investment property during retirement, and suddenly have a large sum of cash that they want to put into superannuation. Or they receive an inheritance and want to know whether they can contribute some or all of it to super. We also see retirees who eventually become a bit bored and decide to do some casual work in retirement, as an example, and now they have surplus income that they don’t need and decide they want to put it into super.
People’s circumstances are constantly changing, even in retirement, and sometimes when these events happen it becomes a relevant question to ask if contributing more money into super is a good idea. Like all things, there are rules that we need to follow, so I will cover some key considerations below.
Contributing Money To An Account-Based Pension Inside Super, Is This Possible?
After retirement, one of the first things most people will do is move their superannuation from accumulation phase and start what’s called an account-based pension inside superannuation, assuming they have met all the rules and conditions.
However, once you have started your account-based pension and start drawing a pension from super, you are prohibited from contributing money to that account and can only draw pension payments or lump sum withdrawals from that account.
Looking at it from this angle makes it seem like contributing to super is no longer an option when you retire and start a pension. Luckily, there is a workaround option, and it is called a pension refresh. How this works is you open a new superannuation account as an accumulation account, so you end up with two accounts, your account-based pension and your accumulation account.
You can now contribute money into your accumulation account, as long as you contribute within the relevant contribution caps and meet all other rules and requirements. Now obviously it is not ideal to have two accounts if you can avoid it, as you will be charged multiple sets of fees, and it can become an administrative nightmare. To avoid this, you can transfer the full balance of your account-based pension into your new accumulation account temporarily, to essentially combine the balances of the two accounts into one. Once this is done, you can start a new account-based pension with your combined balance. There is a bit of administrative work that goes into this process, but it is the only way that you can add to a pension inside super. However, the immediate and long-term benefits can often outweigh the inconvenience of this process.
There are a lot of questions for retirees regarding how to best manage finances or investments. Check out this previous blog we put together: Should I Continue To Invest During Retirement?
Concessional or Non-Concessional Contributions
Concessional (before-tax) and non-concessional (after-tax) are the two main pillars of contributions into superannuation that you can choose.
Therefore, when putting money into super, what type of contribution should you utilise? There are pros and cons to each, and the most favourable option depends on your personal circumstances when making your contribution. Some key things to consider are:
- The caps for each type of contribution. In the 2024/25 financial year, the annual cap for concessional contributions is $30,000, and for non-concessional contributions it is $120,000;
- Concessional contributions incur a contributions tax of 15% inside super. Non-concessional contributions incur no contributions tax inside super, so the full amount you contribute stays in your account;
- Are you eligible to utilise carry-forward concessional contributions or bring-forward non-concessional contributions, or even downsizer contributions?;
- Do you have taxable income, and do you fall into a high tax bracket?; and
- Have you considered how the contribution could impact death benefits tax payable by your nominated beneficiaries if your super were to be paid to a non-tax-dependent/s in the event you pass away?
Other rules to be aware of:
If you are below the age of 67, you can contribute to super without restriction as long as you are within all the caps and satisfy other requirements like some of the ones I have already touched on.
Once you reach age 67, you must meet what is called a work test to make concessional contributions to super, whether they are in the form of employer-mandated, salary sacrifice, or personal deductible contributions. You don’t need to meet the work test to make non-concessional contributions. To meet the work test, the Australian Tax Office (ATO) says “You must be gainfully employed for at least 40 hours during a consecutive 30-day period in the financial year in which contributions are made”.
Once you have met the work test, you are eligible to make personal contributions for the rest of that financial year. The ATO says that the term “gainfully employed”, means “employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.”. The work test applies between the ages of 67 and 74.
Once you are age 75, the only contributions that are allowed to be made to super are employer-mandated superannuation guarantee contributions, which only apply if you are still working. Otherwise, you are no longer able to contribute extra money to any type of superannuation account, regardless of whether you’re working or not.
Canny Advisory: Retirement Planning + Investment Advice
Hopefully, this blog has got you thinking about relevant things to consider if you are looking to contribute money into super during retirement.
If you aren’t quite sure how to go about this or if you would like to know more, our team of financial advisers at Canny Advisory are experts in superannuation and retirement planning and would be happy to chat with you about your situation. At Canny Advisory, our financial advisers work in retirement planning every day and are experts at listening to you, understanding your needs and concerns, and tailoring a unique solution to you to ensure that your retirement is taken care of.
Get in touch with our team to have a chat about how we can help you through your retirement years.
