Superannuation essentials

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The aim of superannuation, since its introduction by the Keating Government in 1992, is to enable all working Australians to accumulate savings to fund their retirement. The most common means of contributing to superannuation is through employer superannuation guarantee contributions (SGC), which by law, must currently be paid at a rate of 9.5 per cent. There are plans to gradually increase this to 12 per cent by 2025.

Australians are encouraged to make contributions to superannuation by favourable tax benefits and many take advantage of these incentives by salary sacrificing to superannuation. This enables an employee to pay an amount of pre-tax salary into superannuation, which when taxed at 15 or 30 per cent, is often less than their own marginal tax rate. These are known as concessional contributions and are capped at $25,000.

Non-concessional contributions can also be made – these come from after-tax income. The current limit on such non-concessional contributions is $100,000 per year, although a scheme exists whereby $300,000 can be made in one year, as long as no other contributions are made in the following three-year period.

Other factors, such as age and hours worked, can determine whether an individual can contribute to superannuation.

Through investment of contributions by fund trustees, individuals hope to see their superannuation fund balances increase by payment of returns on investment and compound interest. As investments can go down as well as up, most people choose a mix of different investment types based on their risk profile.

As there are a lot of variables around how much superannuation you need, how much income you will receive from your superannuation balance and whether or not you can still claim and Age Pension when receiving other retirement income, you should utilise some of the many calculators available on YourLifeChoices.

Types of funds
The most common types of super funds are industry, retail, MySuper, public sector and self managed.

Industry funds were once only open to those who worked with the field specific to that type of fund, but this is now less often the case, with many industry funds now accepting members from all fields. This type of fund generally is not-for profit with all profits are paid back to the members.

Retail funds are those offered by banks and financial institutions and are open to anyone. Financial planners who are paid commissions or fees, although commissions are being phased out, often recommend these by the funds. The financial institutions behind the funds take a portion of the profits to be paid to shareholders.

MySuper is a low-fee fund that is designed to help those with limited incomes make the most of their superannuation contributions. These funds are much simpler, with fewer options than retail and industry funds and you can opt-out of the life insurance component so all your contributions go towards your retirement savings.

Public Sector funds, as the name suggests, are for those employed by state or federal governments. The fees are lower and if you have been employed in the public service for some time, you may have defined benefits status, where you will be paid a set income in retirement, regardless of the performance of the fund.

Self managed super funds (SMSFS) give individuals the opportunity to have more say on how their retirement savings are managed. There are strict controls over the amount of money need to start such a fund and the requirements of those managing SMSFs is similar to being a company director.

Accessing superannuation
On reaching preservation age, which is determined by your year of birth, you can access the money in your superannuation fund. This is commonly done by opening a pension fund or commencing an annuity.

Date of birth

Preservation age

Before 1 July 1960

55

1 July 1960 – 30 June 1961

56

1 July 1961 – 30 June 1962

57

1 July 1962 – 30 June 1963

58

1 July 1963 – 30 June 1964

59

From 1 July 1964

60

Under certain financial hardship circumstances, you can gain early access to your superannuation, but the criteria is strict and the final decision is made by your fund trustee.

Lost super
It’s not uncommon for Australians to have what is referred to as ‘lost super’. This is where an employer has been required to pay SGC on an employees behalf and perhaps because the employee has not nominated a superannuation fund, the contributions are simply paid into a default fund. The employee may not know these contributions have been made. 

An estimated $16 billion of lost super, in just over 6 million accounts is held by the ATO. Anyone who thinks they may have lost super should visit ATO.gov.au and conduct a search.

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