To help you get moving in relation to your super, here are some super basics to get you started.
What is superannuation?
Superannuation (super) is long-term savings put aside over your working life to help you live the retirement you want. Getting to grips with your super early will give you greater control and the confidence to make the best financial choices for you.
The trustee of your super fund will hold your super savings in a super account in your name. In most circumstances your employer is required by law to contribute a certain amount to your super. This mandatory contribution is called the Superannuation Guarantee (SG) and is currently 9.5% of an employee’s Ordinary Time Earnings (OTE)*. You can also add extra money to your super, and this is commonly referred to as ‘contributing’ or ‘making super contributions’.
Generally you can access your super at age 65 or when you retire after reaching your preservation age (between 55 and 60 depending on your date of birth). You may be able to access your super earlier in limited circumstances such as if you become permanently disabled or suffer severe financial hardship.
How do you contribute to your super?
While your employer will generally pay SG contributions into your super account over your career, this may not end up being enough to live the life you want at retirement. So to make sure you have enough, you can make your own contributions on top of the SG that you receive. There is no limit to how much you can add to your super, however the Government has set caps on the amount of money you can add to super each year on a concessionally taxed basis. When making additional contributions to super, it’s important to take care not to exceed your contributions caps as contributions above these caps may be subject to additional taxes and charges.
Some ways you can add to your super include salary sacrifice, personal after-tax contributions and ‘spouse contributions’ which is where your spouse makes a contribution into your super account.
Salary sacrifice – Salary sacrifice is an arrangement between you and your employer where you ask your employer to allocate a portion of your before-tax wage or salary as an extra contribution to your super. While personal super contributions come out of your after-tax salary (ie, after you have paid tax at marginal tax rates), salary sacrifice contributions come out of your before-tax salary and are only taxed at 15% (up to certain limits – see contributions caps above). So if your marginal income tax rate is higher than 15%, salary sacrificing could be a great way to build your super balance and significantly reduce the tax you pay at the same time.
Salary sacrifice contributions count towards your concessional contributions cap, as do any super contributions made for you by your employer. It’s important to take care not to exceed your contributions caps as contributions above these caps may be subject to additional taxes and charges.
Personal after-tax contributions – this is when you add money to your super account after you’ve already paid income tax on it. Money you add your super from your after-tax income doesn’t get taxed on entry to the super fund because you’ve already paid tax on this money. In addition you only pay up to 15% tax on any earnings you make in your super account, whereas investments outside of super are taxed at your marginal tax rate.
Personal contributions generally count towards your non-concessional contributions cap. It’s important to take care not to exceed your contributions caps as contributions above these caps may be subject to additional taxes and charges.
Spouse contributions – Your spouse can add money to your super from their after-tax income.
If you are a low income earner, your spouse may be eligible for a tax offset. Your spouse may be able to claim an 18% tax offset of up to $540 on super contributions of up to $3,000 they make for you. The maximum tax offset may be available if your total income** is less than $10,800. The maximum tax offset decreases gradually until your total income exceeds $13,800.
Contributions made to your super by your spouse generally count towards your non-concessional contributions cap. It’s important to take care not to exceed your contributions caps as contributions above these caps may be subject to additional taxes and charges.
It is worth noting that there are rules about when a person is allowed to contribute or receive contributions to their super fund. Eligibility to contribute to super depends on the contribution type (e.g. personal contribution, mandated employer contribution, voluntary employer contribution, spouse contribution, etc.), your age at the time the contribution is made and your employment status at the time of the contribution (e.g. you may be required to satisfy a work test). For more information, speak with a financial adviser or visit the ATO website.
How can you keep track of your super savings?
Over your career, if you’ve had more than one job, you may have accumulated multiple super accounts. Multiple accounts can make it harder to keep track of all your super. To help you keep track of your super, you may like to consider bringing it all together into the one account. This is commonly referred to as ‘consolidating your super’. Having all your super in one account could also save you paying multiple sets of administration fees.
Another way to help keep track of your super is to make sure that your super fund has your tax file number (TFN). This could make is easier to move your super between accounts and receive super payments from your employer or the government.
What retirement income could your super provide?
If you know your total super balance, you might like to check out our Retirement Income Calculator which will give you an estimate of your super balance at your retirement and help you find ways to make your super work harder for you.
How is your super invested?
The trustee of your super fund invests the money in your super account on your behalf. Most super funds have a range of investment options to choose from. Generally, if you don’t make an investment choice with your super fund, your money is likely to be invested in a ‘default’ investment option.
You need to be sure that you are comfortable with the asset mix for your super and the associated risks. Generally, growth assets such as property provide high investment returns over the long term but they inherently carry more risk through the volatility of returns in the short term. Defensive assets such as fixed income provide more moderate returns over the long term but less volatility in the short term.
*Ordinary time earnings (OTE) are generally the amount an employee earns for ordinary hours of work. It includes payments like commissions, allowances and certain bonuses but excludes overtime. An employer doesn’t usually need to pay SG on the amount of an employee’s OTE that is above the maximum super contribution base ($50,810 per quarter for 2015/16, indexed annually).
**Total income is the sum of assessable income, reportable fringe benefits and reportable employer super contributions.
The information is current as at 30/11/2015.
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs.
This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
The tax position described is a general statement and is for guidance only. It has not been prepared by a registered tax agent. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice.
Superannuation is a long-term investment. Generally, contributions to a superannuation fund are preserved. The government has placed restrictions on when you can access your preserved benefits. In general, benefits will not be able to be paid until a member is age 65, or has permanently retired and is above his/ her preservation age (i.e. 55 years up to 60 years depending on when the member was born).
The Government has set caps on the amount of money you can add to superannuation each year on a concessionally taxed basis. Currently the cap is $30,000 per person pa for the 2015/16 financial year. If you are aged 49 or over on 30 June 2015, the annual cap is $35,000.
In addition, the government has set a non-concessional contributions cap. The cap is $180,000 per person pa. Those under age 65 can ‘bring forward’ two years’ worth of personal contributions, allowing them to contribute up to $540,000 per person over a three year period. For more detail, speak with a financial adviser or visit the ATO website.
Before requesting a rollover, you should consider where your future employer contributions will be paid (if your employer contributions are currently being paid to another fund) and check with your other fund(s) to determine whether there are any exit or withdrawal fees for moving your benefit, or other loss of benefits (e.g. insurance cover), noting that you may not receive the same type or level of benefits after the rollover. You may not be covered for injuries or illnesses that have arisen since you took out previous insurance, and you may lose loyalty benefits.