Unless you are close to retirement, diverting money into super can and often does result in financial problems before you can access it.
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I've written previously about how defined benefit super fund members can obtain substantial benefits by making voluntary super contributions.
However, the situation is completely different for all other super fund members, where the benefit is accumulation-based.
The final benefit is a lump sum, its size varying with the level of employer and member contributions and fund earning rates after taxes and expenses during the period of fund membership.
This accounts for the majority of people: those in the private sector, federal public servants employed after 1 July 2005, and new military employees after 1 July 2016.
With an accumulation-based super fund, there's absolutely no certainty about the ultimate return and, to complicate matters further, the money's tied up and untouchable until retirement, most likely at age 60 or later.
Given the increasing risk of redundancy or need to change jobs, except for people close to or above the mandatory retirement age, diverting money into super can and often does result in financial problems before retirement.
This risk shouldn't be forgotten when deciding whether to make member contributions, even if they can be made on a salary sacrifice basis. Salary sacrifice contributions reduce personal income tax but all the tax savings, as well as the contributions, are tied up in the super fund until retirement.
There are no personal income tax advantages from using take-home pay to reduce the family mortgage but the money is still available if needed later on. The quicker the mortgage is paid off, the less the financial pressure will be in the event of redundancy or sudden reduction in family income.
Furthermore, there's no certainty that diverting additional money to super will generate higher returns than those from paying off a mortgage. Indeed, marriage breakdown and unemployment can result in the forced sale of the family home, even though there may be adequate funds in super to cover the outstanding mortgage. A very high super fund return could compensate for this risk but in volatile times like the present it's unlikely.
A smart strategy for accumulation fund members is to rely solely on compulsory employer contributions until the house mortgage is paid off or greatly reduced. Then, especially for people approaching retirement age, the tax advantages of salary sacrifice super may make voluntary super contributions an attractive savings option.
The closer retirement age is, the more attractive super contributions are, but even then a key factor is the potential investment returns available.
Continuing speculation about adverse changes to the super tax rules don't help in making decisions about personal contributions.
But once the family home is finally owned outright, even if the tax rules do change, additional super contributions are likely to continue to compare favourably with other investment options.
Daryl Dixon is the executive chairman of Dixon Advisory.
