Does Novated Lease Affect Superannuation?
Yes, a novated lease can affect your superannuation in several ways, and it’s important to understand how this works to ensure your retirement savings aren’t negatively impacted.
Salary Sacrifice Contributions:
When you opt for a novated lease, you are essentially salary sacrificing a portion of your pre-tax income to cover the costs of the car lease. While this reduces your taxable income, it also means that the portion of your salary going towards superannuation contributions is reduced. Superannuation contributions are calculated based on your gross salary, so with a novated lease reducing your taxable income, your employer's contributions to your superannuation will also be lower.
Employer Contributions:
Employers are required to contribute a percentage of your earnings to superannuation, known as the Superannuation Guarantee (SG). However, salary-sacrificed amounts, such as those used for a novated lease, are not counted as part of your ordinary time earnings (OTE). This means your employer is not required to make super contributions on the portion of your salary used for the lease. As a result, your overall superannuation contributions might be lower than expected if a significant portion of your salary is going towards the novated lease.
Potential Impact on Insurance:
Many superannuation funds offer insurance benefits, such as life insurance or income protection, which are based on your salary. If your salary is reduced due to the novated lease arrangement, it could impact the level of insurance coverage you are entitled to through your super fund. A lower salary might mean lower insurance payouts in the event of a claim.
How to Mitigate the Impact on Super:
There are steps you can take to ensure that your retirement savings and insurance benefits aren’t affected too much. You can consider making voluntary post-tax contributions to your super to make up for the reduced pre-tax contributions. Additionally, reviewing your superannuation insurance coverage to ensure it still meets your needs is a good idea, particularly if your salary is affected by the novated lease.
In conclusion, a novated lease can impact your superannuation contributions and insurance benefits. To protect your retirement savings, it’s worth exploring voluntary contributions and reviewing your superannuation cover. Consulting with a financial adviser or your super fund can help you better understand these implications and find the best strategy for your circumstances.
Want to learn more about how a novated lease could impact your super? Contact us for tailored advice.