Explained: Super co-contribution

The super co-contribution can help people boost their retirement savings. But how does it work and is it actually having the intended effect?

Under the super co-contribution scheme, the government may match any personal super contributions made by low and middle-income earners, up to a maximum of $500 per financial year.

Personal super contributions are the amounts you contribute to your super fund from your after-tax income (that is, from your take-home pay). These contributions are in addition to any compulsory super contributions your employer makes on your behalf and also do not include super contributions made through a salary-sacrifice arrangement.

To be eligible for the super co-contribution, your personal contributions need to be paid to a complying super fund. If you intend to claim any personal contribution amounts as an income tax deduction, you will not be eligible for the co-contribution.

Read: How to make sure your employer is paying you the correct super

To qualify, you need to be less than 71 years old at the end of the financial year and earn less than $56,112. This amount is set to rise to $57,106 in 2022-23.

You don’t need to do anything to claim the co-contribution apart from lodge your return at tax time. The Australian Tax Office (ATO) will automatically check your eligibility and make contributions to your fund as required.

The ATO provides a super co-contributions calculator to work out how much you may be eligible for.

First introduced in 2003, the super co-contribution scheme was intended to encourage those on lower incomes to save more for their retirement.

Read: How did your fund perform at the super fund awards?

At first, contributions were matched dollar-for-dollar, then in 2004-05, the co-contribution went up to $1.50 for each dollar. In 2009-10, the Labor government under Kevin Rudd reduced it back to $1 and in 2012-13, Julia Gillard’s government cut it to 50 cents.

But critics of the scheme say that it has done little to encourage more retirement saving by those on lower incomes and, in fact, sends most money to those who are already well-off and would have made super contributions anyway.

A study conducted by the University of Melbourne and Deakin University, found that at a co-contribution rate of 50 cents on the dollar, the scheme increases total contributions by just one per cent.

Read: Calls for lower mandatory drawdown rates to be made permanent

At the previous rate of $1, the increase was 1.5 percentage points and even at the earlier rate of $1.50, it was just 3.5 per cent higher.

The study also found the biggest increases in contributions were from high-income earners who happened to qualify in a particular year due to a temporary drop in income and women with partners.

Those normally in the top 25 per cent of income earners were four times more likely to take advantage of the scheme than those normally in the bottom 25 per cent.

Women with partners were more than twice as likely to contribute than single women or men with partners, and four times more likely than single men.

The study’s authors concluded the likely explanation was that the scheme had been used by women with higher-earning partners.

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