Ask the Expert: Mortgage or super? Division 293 and defined benefit
This week financial advisor Craig Sankey looks at whether paying off the mortgage is better than building up your super account.

Question 1
Hi Craig, my wife and I are in our 40s. We only have $65,000 owing on our primary mortgage and two investment properties with mortgages. My question is: should we just focus on paying off our primary mortgage as soon as possible (around two years), or should we continue contributing extra money in superannuation to bolster our retirement income? With higher interest rates, I am leaning towards extinguishing the mortgage.
It seems like you have already ruled out making additional repayments on your investment properties, and assuming you have the loans under control, this makes sense given these loans are tax deductible.
Many people wait until their home loan is repaid before looking at making additional voluntary super contributions. However, it may not always be the best approach financially.
The main advantages of making additional contributions to super are:
- If you make them pre-tax, via salary sacrifice, these contributions are very tax effective.
- Let’s look at an example, assuming you are on a marginal tax rate of 39 per cent (includes Medicare). If you contribute $100 to super via salary sacrifice, only $15 is lost to (contributions) tax, leaving $85 to be invested. Conversely, if you get paid the same $100, you lose $39 to (income) tax, leaving only $61 to pay off your loan. Do this every fortnight and the tax difference really adds up.
Generally, the higher your marginal tax rate, the more beneficial pre-tax contributions to super are.
Long-term super returns should outperform your home loan rate. Research house Chant West recently published the median 10-year (after fees) return for growth super funds, which was 7.2 per cent per year. This is higher than current mortgage rates, which start with either a 5 or 6.
On the other hand, making mortgage repayments provides the following benefits:
- You have a guaranteed rate of return, whatever your mortgage interest rate is. With super, you need to take on some investment risk
- If you have a redraw facility, money can be withdrawn, whereas with super the money is locked away until at least age 60
- There is a cap on how much you can contribute to super, so you need to stay under that amount for the contributions to remain tax effective
- There are psychological benefits in paying off your home loan. It’s a big goal for many people and seeing it reduce provides motivation and a sense of satisfaction. Many people don’t like to be in debt and will prioritise eliminating debt above all else.
I don’t know your exact circumstances, but at a high level the following general principles apply:
- Making pre-tax contributions to super is normally the best financial decision. This is even more so if you are on a high income. It also makes sense the older you are, as you don’t have to wait too long to access your super
- If you are younger and are concerned with having debt, then prioritising paying down your loan may be appropriate.
Question 2
I was lucky to receive two back pays and a small bonus in FY 2022-23, but recently received (seven months into the new financial year) a division 293 demand from the ATO to pay over $3000 in extra tax. Are there ways to manage this better? And why are some people (eg MPs and judges) exempt from this penalty?
Division 293 tax is an additional tax that is applied to concessional contributions (e.g. employer superannuation guarantee and salary sacrifice) if your income for a financial year exceeds $250,000.
Division 293 tax of 15 per cent is levied on superannuation “taxable contributions”. It means that, instead of paying 15 per cent on superannuation concessional contributions, 30 per cent is applied.
Whilst this can come as a surprise and it can also be a hassle from an administration point of view – dealing with the ATO – the tax is still a lot lower than the highest marginal tax rate of 47 per cent (including Medicare) for those earning over $190,000.
There is not too much you can do in relation to this, apart from factoring it in when working out how much you should contribute to super and timing of contributions based on what your income will be for the financial year.
Most of the frustration comes with being hit with an unexpected tax bill, but as mentioned above, the tax will still be lower than your marginal tax rate.
In relation to MPs and judges, yes, they do have some special and complicated arrangements to do with their super funds.
At a high level though, I agree it should be a level playing field and we should all have the same rules.
Question 3
Hi, I am 62, retired and receive $19,000 for the rest of my life from $300,000 in a defined benefit fund. I also have $900,000 in other super. Once I hit pension age, how is the $19,000 I get each year classified towards me getting a part-pension? Is it just counted as $300,000 in assets plus my other money?
Once your defined benefit is converted to a lifetime pension, generally you cannot then have access to any of those funds.
Therefore, Centrelink does not count anything under the asset test but does count the $19,000 in the income test.
In some instances, you may get a reduction on what’s included in your income test by up to 10 per cent, depending on the tax components of the lifetime pension.
Centrelink or your super fund can let you know the exact details that would apply to you.
Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.
Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.
Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.
– TND