Knowing what is superannuation and how it works can give you greater control and the confidence to make the financial choices that are right for your needs.
Your super is a very long term investment, specifically designed to help you save for retirement. During your working life, your employer will make regular contributions to your super account as required by the Superannuation Guarantee legislation. These contributions are currently worth 9.5% of your ‘Ordinary Time Earnings’ and are commonly known as Superannuation Guarantee (or SG) contributions.
You can also add extra money to your super too and this is commonly referred to as ‘contributing’ or ‘making super contributions’.
Your employer’s contributions and any contributions of your own are added to your super fund, and invested across a variety of different assets. These investments can comprise of anything from cash and fixed interest, with the annual returns helping to grow your super balance.
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.
Most Australians choose to have their super professionally managed, so while you are progressing through different life stages, your super keeps working away in the background with the benefit of professional investment expertise. When you are ready to retire, your super provides a valuable source of money to live on.
One of the advantages of superannuation as an investment environment is that it is lightly taxed. This can mean more of your money goes towards your retirement than if you were to invest outside of super.
As a guide, before-tax, or ‘concessional’, contributions are taxed at just 15% if you earn under $300,000 per financial year (it is proposed to reduce this limit to $250,000 from 1 July 2017) and contributions made using after-tax money, known as non-concessional contributions, don’t attract any tax at all. The investment returns your super earns are also taxed at 15%. If you earn more than $300,000 per financial year($250,000 from 1 july 2017), contributions to your super are taxed at 30%.
We can’t normally access our super during our working life, but that’s not such a bad thing. It means your super will be there for you when you need it most – in retirement.
As you near retirement you may want to wind down your working days and your super can be used to provide additional funds to live on or supplement your income through a ‘transition to retirement’ pension.
Then, when you are ready to fully retire, you can choose to take your super as a lump sum, or as an income stream called an account based pension. This lets you enjoy a regular income in much the same way as your working days and, because you keep your money within the super system, it continues to be invested and benefit from ongoing tax concessions.
Even when you are in your working years, your super is still very much your money and that makes it worth taking an active interest in your super savings.
Information current as at 15/08/2016.
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.
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 2016/17 financial year. If you are aged 49 or over on 30 June 2016, 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. However, in the Federal Budget announced on 3 May 2016, the government proposed to introduce a lifetime cap of $500,000 on non-concessional contributions, which would include non-concessional made since 1 July 2007. 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.