The Shocking Truth about Super Co-Contributions

If losing money was a crime, there would be over 2 million Australians facing trial every year. That’s how many Australians are throwing money away by not participating in the government’s superannuation co-contributions scheme.

The scheme was introduced in 2003 and designed to help low to middle income earners build on their superannuation for retirement. It’s been well documented that the majority of people will not have sufficient savings at retirement to enjoy a ‘comfortable’ retirement. The Association of Superannuation Funds of Australia defines this as an annual income of around $51,000 for a couple or $38,000 if you are single. A ‘modest’ income is defined as approximately $28,000 for a couple.

Despite compulsory employer superannuation of 9%, many Australians will fall well short of being able to reach this type of income. Particularly low to middle income earners and people who may not work for many years of their lives while raising a family. Come retirement, these people will rely more on government support just to achieve a ‘modest’ income let alone getting anywhere near to a ‘comfortable’ retirement.

Hence, the government’s incentive to avoid this problem, by encouraging low to middle income earners to save more for retirement, by giving away free handouts.

At least $1,000 every year if you earn less than $31,920. For every dollar you earn over that figure the co-contribution is reduced by 3.33 cents which means you can still receive a part co-contribution until your income reaches $61,920.

All you have to do is save less than $3 a day into super and the government will match it. That’s a return of 100%. And by 2015, the government will increase their contribution to $1,500.

Where else can you get that sort of return on any investment? 150%!

And its government guaranteed.

And yet so many Australians are throwing money away by not participating in the scheme. According to the Australian Bureau of Statistics there are approximately 10.8 million people in the workforce and included in that figure are approximately 3.2 million part time workers. 3.2 million part-time workers who would all, most likely, be earning less than $32,000 p.a. There are also many full time workers who would be earning under $32,000 p.a.

Many 16 – 21 year olds would fall into this group. So we have at least 3.2 million people and probably closer to 4 million Australians who would qualify for the super co-contribution scheme and yet according to the Australian Taxation Office’s Co-Contribution Annual Report for 2008 only 1,278,957 people participated in the scheme. That’s over 2 million people throwing away the opportunity of making guaranteed returns up to 150%. Let’s not forget also, that many of these people may earn less than $32,000 for many years and even more may never earn $32,000 in a year throughout their whole life.

If an 18 year old participated in the scheme until retirement at 65 (assuming they earned under $32,000p.a. throughout their life), they could end up with a super balance of $2,425,368.

Not bad, for less than $3 a day.

With a balance of $2.4 million you can afford a lot more than even a ‘comfortable’ lifestyle.

This assumes a saving of $1,000 a year and getting a net return of 8% p.a. plus franking credits as shown in the attached table.

So, if you think that low income earners cannot retire wealthy, then think again. The government superannuation co-contribution scheme is more than generous and a great way for the younger generation to build a substantial sum for retirement.


Rob Bourne has been involved in the financial services industry for over 35 years. As a practising financial adviser he focuses on the need for practical and down to earth financial education. The aim is to educate people through financial education so they can take control of their own financial future. Visit Rob's website here for more information on business opportunities, investing and financial education or the complete guide to superannuation a...

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