With the new financial year about to start, it’s the perfect time to start making co-concessional contributions to your superannuation account. These contributions are the key to unlocking 50% annual returns for most students.
What are co-concessional contributions?
Co-concessional contributions are also known as after-tax contributions, so anything that you put into your superannuation account after you have paid income tax on it.
Recently I stumbled onto how powerful these contributions can be for students and, to be honest, I was quite annoyed that I hadn’t heard of them sooner, as I could have been getting these 50% returns since 2011.
How does it work?
Basically, the government wants to encourage people to grow their super, so they have to support you less at the end of your life via the pension. They achieve this via a co-contribution scheme which grants you with a 50% return on every dollar you contribute into your super (after tax) up to $1000.
The reason this grant is perfect for students is there is a restriction on the amount of income you can earn to receive the grant. For 2016 if you earn less than $36,021 you will receive the full 50% return straight into your account after you have lodged your tax return. Once you earn over $36,021 there is a sliding scale where you will receive slightly less than a 50% return gradually until you earn $51,021 or over, in which case you are ineligible for the grant. I assume that most students, like myself, are under the threshold which will allow us up to $500 back each year into our super.
$1000 dollar may seem like a large amount for students as a lump sum, but if you break it down in to fortnightly payments it’s a little less than $40 dollars a month (or $10 a week) which is quite reasonable.
Why is this the best investment you can make?
A 50% return on investment is a very rare thing in the financial return, and usually can be a red flag that whatever is achieving that return will have a very high associated risk. Compare this 50% return to that of the market, which generally rises at between 6-8% each year and you can see why it’s a smart investment. Then add on that you are guaranteed a 50% if you comply with the conditions and it is essentially a risk-free decision. Granted the amount to invest is capped at $1000 annually, but if there is one investment to make whilst you are studying, this should be your first.
The ATO has a site with full details here if you wish to read further.