Members of the Public Sector Superannuation Scheme (PSS) face unique challenges when their total superannuation balance (TSB) exceeds the $2 million threshold, particularly concerning non-concessional contributions (NCCs). Once your TSB surpasses this limit, your NCC cap becomes $0, effectively disqualifying you from making further NCCs without incurring substantial penalty tax. This includes your member contributions of between 0-10% of your salary which you make fortnightly.
However, there are strategic avenues to consider. This requires careful planning and adherence to regulatory guidelines.
Understanding the Non-Concessional Contributions Cap
Non-concessional contributions are after-tax contributions made to your superannuation fund. For the 2025-36 financial year, the NCC cap is set at $120,000. If your TSB exceeds $2 million at the end of the previous financial year, your NCC cap becomes $0, meaning you cannot make any further NCCs without incurring penalty tax.
Consequences of Exceeding the NCC Cap
Exceeding the NCC cap results in the excess amount being subject to an additional tax rate of 45% plus Medicare levy. Before this tax is applied, the Australian Taxation Office (ATO) will offer you the option to withdraw the excess contributions, along with 85% of any associated earnings, to avoid the tax. If you choose not to withdraw the excess, the amount will remain in your superannuation fund and be taxed accordingly. Paying an additional tax at the top marginal rate on contributions paid from salary which has already been taxed potentially at this rate already is a difficult outcome to accept.
Drawbacks of Ceasing Member Contributions to the PSS
An alternative strategy is to cease making member contributions to the PSS once your TSB reaches $2 million. While this approach may seem straightforward, it comes with several potential drawbacks:
- Loss of Employer Contributions: In the PSS, employer contributions are based on your member contributions. By ceasing your contributions, you may reduce or eliminate the employer’s matching contributions, potentially impacting your overall superannuation balance.
- Impact on Accrued Benefit Multiple (ABM): Your ABM, which determines your final retirement benefit, is influenced by your contribution rate and length of service. Reducing or ceasing contributions may affect the growth of your ABM, potentially leading to a lower retirement benefit.
- Potential for Reduced Retirement Income: By ceasing contributions, you may miss out on the opportunity to increase your superannuation balance through both personal and employer contributions, potentially resulting in a lower retirement income.
Faced with a choice of either double taxation at the top marginal rate or ceasing contributions into the PSS and therefore no longer accruing any additional benefit multiple is a difficult choice to make. For those who have yet to reach the TSB limit in their super there are strategies to be employed which can avoid this difficult decision, but early action is crucial. For those who have achieved this milestone and are unprepared for it careful consideration of the pros and cons of continuing to make contributions in excess of the cap is essential. Milestone is able to assist in either case and ensure you maximise the benefits of membership in this generous scheme
Written by
Andrew Boulds
CFP® BSc. (Hons.) MAppFin | CERTIFIED FINANCIAL PLANNER® Professional