There are a number of disadvantages of non-concessional contributions to super.

The disadvantages of non-concessional contributions are predominately based around accessibility, but there are other disadvantages too.

A non-concessional contribution to super is a type of super contribution made by an individual into their own superannuation account.

This type of personal super contribution is a tax-effective means of saving for retirement.

There are many benefits of making non-concessional contributions, but it is important to understand the disadvantages also.

There are two main types of super contributions: Concessional contributions and Non-Concessional Contributions.

Disadvantages of Non-Concessional Contributions

A non-concessional contribution is categorised as a contribution that a tax deduction has not been claimed for.

The maximum non-concessional contribution cap is $100,000 per person, per financial year.

However, more can be contributed using the bring-forward rule, the home downsizing provisions or a small business CGT concession.

Listed below are the disadvantages of non-concessional contributions.

1. Withdrawal of Non-Concessional Contributions

Understanding when you can withdraw non-concessional contributions is important.

Once a non-concessional contribution is made to superannuation, it becomes preserved.

It remains preserved and inaccessible until you satisfy a superannuation condition of release.

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Under normal circumstances, a condition of release includes meeting the superannuation definition of retirement or reaching age 65.

Once you reach age 65, your total super balance, including non-concessional contributions, become available for withdrawal.

Your super can be withdrawn as a lump sum, income stream, or a combination of the two.

Under current super rules, withdrawals can be regular or ad-hoc.

Income streams require at least a minimum pension payment to be made each year.

If you would like to access your superannuation prior to age 65, you need to make a declaration to the trustee of your super that you have met one of the definitions of retirement.

The definitions of retirement include:

  1. Attained your preservation age and retired, with no intention of ever returning to full-time or part-time work; or
  2. Having an employment arrangement come to an end after age 60

In relation to the first definition, above, part-time is defined as working 10 hours to 30 hours per week.

An employment arrangement in the second definition is further elaborated on under the definition of gainful employment.

If you do cease an employment arrangement after age 60, you are able to access your super even if you begin a new role.

Starting a new role does not impact your ability to continue withdrawing your super.

However, any additional contributions made to super, after ceasing the initial employment arrangement, will be preserved and inaccessible until you meet a condition of release again.

This is the first disadvantage of non-concessional contributions – inability to access contributions until a condition of release is met.

2. No Tax Deduction for Non-Concessional Contributions

The second disadvantage of non-concessional contributions is that a personal tax deduction cannot be claimed for making the contribution.

Unlike concessional contributions, where a tax deduction is claimed by the contributor, a non-concessional contribution does not provide the same benefit.

This is one of the benefits that concessional contributions have over non-concessional contributions.

However, because a tax deduction cannot be claimed for non-concessional contributions, they also do not incur contributions tax.

Furthermore, non-concessional contributions, in all circumstances, can be withdrawn tax-free from super.

So, there are benefits of non-concessional contributions too.

3. Limited Investment Options for Non-Concessional Contributions

The benefit of making non-concessional contributions to super is that the contributions can be invested and receive concessional tax on earnings.

Despite being named non-concessional, they are still afforded the concessional tax treatment of investment earnings within super.

Specifically, earnings within superannuation accumulation phase and TTR pension phase are taxed at a maximum of 15%.

You can compare this tax rate to your marginal tax rate, which is how earnings are taxed if you invest in your own name.

If you use your super to start an account based pension, all earnings within the pension are received completely tax free.

These tax concessions can be beneficial, but investing within super has some drawbacks.

Unlike investing your own name, your investment options within super are limited.

The degree of limitation is determined by your superannuation fund and superannuation rules.

Generally, industry super funds are limited to aged-based investment options, asset classes or risk profiles.

Retail and wholesale super funds are often limited to the same as industry funds, plus a wider range of managed funds and access to ASX-listed shares.

Self Managed Superannuation Funds (SMSF) have the greatest flexibility and can invest in anything, subject to restrictions in super legislation and the SMSFs trust deed and investment strategy, including direct property.

The disadvantages of SMSFs is that they can come at a higher cost to run and there are significantly greater responsibilities imposed.

This is because SMSF members are also the trustees of the SMSF and need to abide by the relevant rules.

Therefore, compared to investing in your own name, limited investment options is another disadvantage of non-concessional contributions.

4. Maximum Non-Concessional Contribution Limits

Yet another disadvantage of non-concessional contributions is the maximum non-concessional contribution caps imposed.

The maximum amount that can be made as a personal non-concessional contribution is $100,000 per person in each financial year.


However, by utilising the non-concessional bring-forward rule, you can bring-forward up to two additional years of the cap.

This means that you can contribute up to $300,000 at any point over a three-financial year period, with no regard to the annual cap.

The bring-forward rule is triggered in the first financial year that your non-concessional contributions exceed the standard annual cap of $100,000.

The bring-forward rule is not available to individuals over age 65.

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Excess non-concessional contributions tax may be payable for contributions over and above the cap.

Outside of the standard non-concessional contribution cap and bring-forward rule, additional non-concessional contributions can be made using the home downsizing provisions.

Non-concessional contributions to super made under the 15-year CGT exemption and CGT Retirement exemption also will not count towards the cap.

You must notify your super fund of your home downsizing election or CGT exemption election in these instances.

Another non-concessional contribution cap introduced from 1 July 2017 is the $1.6 million cap.

Non-concessional contributions cannot be made if your total combined super and pension balances exceed the Transfer Balance Cap.

The only exception to this is contributions made under a CGT election of the home downsize provisions as per section 292-90 of the Income Tax Assessment Act 1997.

The current Transfer Balance Cap is $1.6 million.

5. Non-Concessional Contribution Super Age Limits

There are certain age restrictions on who can make or receive super contributions.

People under age 65 are able to make non-concessional contributions without satisfying any employment conditions.

Individuals aged 65 to 74 can make non-concessional contributions, provided they meet the superannuation work test.

The superannuation work test requires the member to work at least 40 hours over a 30-consecutive day period in the financial year that the contribution is made and prior to the contribution being made.

New work test rules, from 1 July 2019, provides an exemption in the first year of retirement for people with balances under $300,000.

That is, individuals aged 65-74 will not need to meet the work test in their first year of retirement if they have a total super balance of less than $300,000.

The period that non-concessional contributions can be made under this measure is for 12-months at the beginning of the financial year following the year that they last met the work test.

The standard non-concessional contribution caps will still apply.

Individuals over aged 75 and over cannot make non-concessional contributions to super.

Let me know in the comments below if you have any questions or can think of any other disadvantages of non-concessional contributions, or click here to read examples of the benefits of super.

Chris Strano

Hi, I hope you enjoyed reading this article. If you want my team and I to help with your retirement planning, click here. If you prefer a DIY approach, then check out the SuperGuy HUB. Thanks for stopping by - Chris.

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