Australians have taken a massive $35.3 billion out of superannuation under COVID-19 emergency arrangements and if you are one of those who did there are ways you can invest some of it to your advantage.

New research from Commonwealth Bank’s Colonial First State (CFS) shows that 16 per cent of people have withdrawn super early but only 6 per cent plan to contribute spare cash back into super from the income tax cuts, which have started kicking in for many people in recent weeks.

Although some people making withdrawals used the money for necessary living expenses, once the crisis is over, there are some smart things members can do with any leftover cash, according to Antoinette Mullins, principal of Beyond Today Financial Planning.

“As the economic and job prospects improve, you should look to medium and long-term goals,” Ms Mullins said.

“If you are a younger person, then you could contribute an extra $50 per fortnight to super and you might not even miss it and it will make an enormous difference to your retirement balance.”

There are pros and cons to reinvesting cash into super instead of putting money aside for other investments. Before you make a choice, you need to understand the possibilities.

At the moment, your employer will be making contributions into your superannuation that are equal to at least 9.5 per cent of your wages. They are concessionally taxed at 15 per cent, well below what you pay on an average salary.

If you want to put extra savings back into super, you can either do it yourself as a personal concessional contribution, or set up salary sacrifice arrangements with your employer, where they put an extra amount of your wages into super.

“The problem with salary sacrifice is that it’s not flexible,” said Wayne Leggett, adviser with Paramount Financial Solutions.

You are committed to an amount every fortnight and if you turn it off mid-year your boss might not agree to turn it on again.”

Overall, you can make concessional contributions of up to $25,000 a year. So, for all bar those on incomes above $264,000, you will have headroom to make contributions above the superannuation guarantee (of 9.5 per cent).

You can choose to make personal concessional contributions any time you like, so the strategy is very flexible.

Non-concessional contributions are another option but these are made on after-tax income, so there is no immediate tax advantage. But if you have a windfall, you can contribute up to $100,000 a year this way until you have a balance of $1.6 million.

If you do decide to make a salary sacrifice into super of, say, $500 a month, “you should tell the ATO what you’re doing and they will reduce the income tax they take from your salary to account for it,” Mr Leggett said.

That gives you the tax benefit throughout the year, as opposed to one lump sum at the end.

“But if you tell the ATO you’re doing that, make sure you do it or you will get a tax bill at the end of the year and they mightn’t let you do it in the future,” Mr Leggett said.

Younger Australians raid retirement savings

Young people are overwhelmingly the ones who withdrew money under the early super access scheme, according to Treasury’s Retirement Income Review (RIR).

So young people are the ones who will suffer more if they don’t redress their resulting investment deficiency.

The RIR found that a 30-year-old withdrawing the maximum $20,000 from super would consequently find themselves $40,300 worse off at retirement, when changes in average weekly earnings are considered.

But contributing more to super may not be the best option for a younger person, says Wayne Leggett, adviser with Paramount Financial Solutions.

“I warn younger clients that the superannuation preservation age is going to go from 60 to 65 or even 70, so making contributions now means you will be without that money for a long time,” he said.

So, if you are young, there are other attractive options.

One is establishing an investment portfolio through a managed fund or ETF (exchange traded fund). That could give you exposure to the sharemarket, investment properties or other assets.

That could be done either through a cash contribution, which you can add to in coming years, or via a geared strategy, where you can buy a bigger portfolio than you can afford now, and pay it off over time.

Gearing allows you to write off interest costs against your income tax, but “with interest rates so low the tax advantages are not what they once were,” Mr Leggett said.

Nonetheless, an investment in Australian shares, either geared or not, would give you the extra tax advantage of dividend imputation, Ms Mullins said. That means the share dividends you get are tax free.

Given that the average dividend on the ASX is currently 4.1 per cent and the bank will pay you at best 1 per cent on savings, shares leave you way ahead on income alone. And it could also be a smart way to build up a housing deposit quicker.

Pay down the mortgage

Some of the money you withdrew from super could also be used to help pay off your mortgage quicker, if you select the right strategy.

“If you have a mortgage, then putting money into a mortgage offset account is a good way to go,” Mr Leggett said.

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