What is superannuation?
Superannuation is designed to provide money for one’s retirement. Employers have to pay superannuation contribution to the chosen fund of the employees (in most cases). This currently is 9%of the income. If someone is self-employed they can chose whether to have superannuation or not. Usually superannuation funds provide life insurance and income protection insurance. One can boost their superannuation fund by making own contributions and may consider salary sacrifice. But there are limits on how much you can contribute without incurring extra tax.
What all types of superannuation funds are there?
There are two basic kinds of superannuation funds
1. Accumulation funds – your retirement benefit depends on how much you accumulate over your working life, which will be the money paid in plus investment earnings less expenses.
2. Defined benefit funds – the value of your retirement benefit is defined by a set formula which, for example, may take into account your length of service and age at retirement. Defined benefit funds are common in the public sector. They are also used by some large companies.
Who is eligible for employer funded superannuation?
Your employer has to pay super for you if you are eligible. To be eligible you must:
be at least 18 years of age and under 70
be paid at least $450 (before tax) in a calendar month, and
work full time, part-time or on a casual basis.
If you are under 18, you are eligible for compulsory super guarantee if you work more than 30 hours a week.
If you are eligible for super, your employer must pay a minimum of 9% of your earnings for your ordinary hours of work into your super account. These payments are ‘super guarantee’ payments or ‘employer contributions’. They are also referred to as ‘concessional contributions’.
What are the criteria for selecting your superfund?
Generally, you can choose the super fund you want your super contributions paid into – making sure it is a ‘complying’ super fund. A complying super fund is a fund that meets certain government rules, known as regulatory requirements. You need to confirm this with the trustee of the fund. If you are eligible to choose a fund, your employer must give you a Standard choice form so you can make that choice in writing.
What is an industry funds?
Set up in the mid-1980 by employer associations and trade unions. Industry funds were designed originally to accept superannuation contributions in accordance with productivity payments made under industrial awards. In those days industry funds were only open to people working in the same industry or under the same industrial award. Since superannuation Guarantee was introduced in 1992 , they started running funds for a broader number of people. Some of the major industry funds are Cbus, Hesta, Hostplus, Rest, STA and Uni Super.
What is a retail funds?
Retail superannuation funds are run for profit by financial institutions such as banks, financial planning groups and fund managers.
Which fund is better? Industry funds, retail funds or Retirement Saving accounts?
This should be answered by your financial planner depending upon your circumstance. But a brief description may help you learn some of the facts. Industry funds are not for profit funds where as retails funds are run for profit by financial institutions. Retail funds usually pay for advisors to recommend their service, and fund members will have to bear the cost. Industry funds usually don’t pay for advisors. Retail funds have more investment choices compared to industry funds. In the past fifteen years only once retails funds outperformed industry funds in returns for the investors that is industry funds are a better performer compared to retail funds. As we always say past performance is not an indicator of future performance. But of course past performance matters when choosing a fund for your super. Retirement Savings accounts are low risk , low return funds and most suited for people who think the earth is flat and they live in 18th century. The advantage of RSA is that unlike industry and retail funds they rarely give negative returns.
What all factors to be considered when choosing a super fund?
Read the product disclosure statement of the fund. Get an understanding of how it is run and who all are the trustees.
Check the past performance of the fund.
Compare their fees.
Compare the insurance options
Compare investment choices they provide and how important are they for you.
The services they provide to member
Retirement Savings account, are they super funds?
Retirement savings accounts are not super funds but operate under similar rules. Retirement savings accounts are offered by approved financial institutions. Just like complying super funds, they accept super contributions for, and provide benefits upon retirement, invalidity or death of, the account holders.
Self managed super funds are they your cup of tea?
Self managed super funds (also known as DIY funds) perform the same role as other funds, by investing contributions and making them available to members on retirement. The difference is you would manage many of the decisions and obligations around your super yourself. To be viable to meet the cost of regulatory requirements, it will be a good idea to go for DIY only if your super has a balance of 150000 and you earn at least $80000 a year. Above all you should be good at or well informed about investment and handling money.
What are concessional and non-concessional Components of superfund? How they are taxed?
Concessional contributions are generally the contributions your employer makes or you make and claim as an income tax deduction. Non-concessional contributions are contributions you make from your own money. Also known as ‘after-tax’, ‘undeducted’ and ‘personal’ contributions. Non-concessional (after tax) contributions don’t get taxed on the way into your super account (tax may apply if your non-concessional contributions exceed the non-concessional contribution cap). Concessional Components include Super guarantee payments, any other super contributions your employer makes for you, including salary sacrifice contributions, contributions you make and claim as an income tax deduction. Non Concessional components include your take-home (net) pay, your savings, your spouse; that is, money your spouse pays into your super or the tax-free portion of any foreign super that you transfer from overseas to your Australian super account
If salary sacrificed super contributions are made to a complying super fund, the sacrificed amount is not considered as a fringe benefit for tax purposes. The employer need not pay any fringe benefit tax for salary sacrificed super. But need to include in the payment summary as a reportable fringe benefit amount. The salary sacrificed amount is considered as an employer contribution for tax purposes . But if the superannuation fund is not a complying fund, the contribution will be considered as a fringe benefit.
What are the caps for concessional and non-concessional components of superfund?
Concessional cap-. Up to $50,000 (indexed annually) worth of ‘concessional’ contributions can be made into your super account each year. If you go over the concessional contribution cap, those contributions will be subject to extra tax. If you are over 50 during a transitional financial year (2007-08 to 2011-12) you can contribute up to $100,000 a year in concessional contributions. Any amount over the concessional contributions cap will be taxed an additional 31.5%. The excess will also count towards your non-concessional cap.
Non-concessional caps – You can make up to $150,000 a year in non-concessional contributions (this figure is three times the concessional cap amount which is currently $50,000). If you’re under 65 in a financial year, you have the option of ‘bringing forward’ some of your contributions. Instead of a yearly cap of $150,000, you can contribute up to $450,000 over a three-year period – but certain conditions apply. Any amount over the non-concessional cap will be taxed at 46.5%.
The Information source about superannuation
For free financial tips and safety checks, including superannuation calculators and information about retirement income products, help on suspected inadequate, misleading or deceptive information, or fraud or dishonest conduct.
visit www.fido.gov.au or phone 1300 300 630
Australian Prudential Regulatory Authority
If you suspect your super fund is being mismanaged, or if your employer is not forwarding your personal super payments to your super fund.
visit www.apra.gov.au or phone 1300 13 1060
For information about early release of super on compassionate grounds, talk to your super fund first
For free financial information and seminars, help on Age Pensions and benefits
visit www.centrelink.gov.au or phone 13 23 00 or
visit your nearest Centrelink Customer Service Centre.
For information about Service Pensions:
Department of Veterans’ Affairs or visit www.dva.gov.au or phone 133 254
Financial Literacy Foundation – Helps Australians improve their financial knowledge and better manager their money. For information:
visit www.australia.gov.au/understandingingmoney or write to: Financial Literacy Foundation, The Treasury , Langton Circuit , PARKES ACT 2600
If you have a complaint that you can’t resolve with your fund, contact the Superannuation Complaints Tribunal for help by:
visiting www.sct.gov.au or phoning 1300 884 114
How to track lost super ?
For lost super visit the site http://www.ato.gov.au/super/content.asp?doc=/content/33301.htm . To access the system you will require your Australian Tax file number, name and date of birth.
Do you have to pay any tax when you are eligible for withdrawing super after the prescribed age?
Super benefits are tax- free if paid from a taxed source and you are 60 or over. There are tax consequences for you if you hold super in a non-complying fund If your only income is your super from a taxed source and you’re 60 or over, then you may not need to complete an income tax return from the 2007–08 financial year. You can keep your savings in super for as long as you like, with no compulsory cashing out rules. Your employer can claim a tax deduction for contributions they make for you until you turn 75 – any compulsory contributions your employer makes for you after you turn 75 are also fully deductible, and changes to the pension assets test taper rate mean more people are eligible for government benefits such as the Age Pension and Service Pension.
How much is super co – contribution by the Government?
For low to middle income earners, government may help boost super savings by super co- contribution and low income super contribution. For those eligible Government will match personal super contribution upto a set maximum amount. The eligibility criteria for those who made a personal super contribution are as follows.
- The total income should be less than the higher income threshold for that year . In 2012 -13
- 10% or more of the total income was from eligible employment , running a business or combination or both.
- Your age is less than 71 years at the end of the income year.
Can you withdraw your superannuation if you planned to leave Australia?
This payment is not available for Australian permanent residents or New Zealand citizens because they have the option of retiring in Australia. If you worked in Australia on an eligible temporary resident visa, you must wait until that visa is cancelled or expires before lodging a claim for superannuation benefits.
For further information visit http://www.immi.gov.au/allforms/superannuation/index.htm
How do you know how much super will be in your account if only the superannuation guarantee component goes into your account when you retire?
To get an approximate measure of that please visit this fido site superannuation calculator at http://www.asic.gov.au/superchoice
You cannot legally gain access to the ‘preserved’ part of your super until you reach your ‘preservation’ age (ranging from 55 years old to 60, depending on when you were born). There are certain exceptions, such as severe financial hardship or compassionate grounds, but anybody who otherwise offers you early access to your super is acting illegally. If you do access your super early for an illegal reason, you may be subject to legal action and heavy penalties. You can contact local fair trading office or ASIC ( contact details at http://www.scamwatch.gov.au/ )
Is there any complaint resolution process for the Superannuation Industry?
Superannuation complaints tribunal is an independent tribunal set up by Commonwealth Government to deal with complaints about superannuation funds, annuities and deferred annuities and Retirement Savings account. More details are available from the website of Superannuation Tribunal at http://www.sct.gov.au/
Is there any tax saving tips as far as superannuation is considered?
Super funds pay tax at a special concessional rate. Your fund pays 15 percentage taxes on all employer contributions and if you withdraw this concessional component after you turn 60 it is tax free. There are many ways to explore the possibilities of saving tax through your superannuation
1. Salary sacrifice – Salary sacrifice is an arrangement between you and your employer whereby you agree to forgo an amount of your salary in exchange for an equal amount of super contributions. The amount you sacrifice is automatically taken out of your gross salary by your employer and placed into your super account. This has the effect of reducing your taxable income. This strategy is tax effective as you pay only 15% contributory tax on any salary sacrifice amount, which may be less than the marginal tax you pay for your income.
2. Make a spouse contribution – If your spouse is not working or has a low income, contributing to your spouse’s super will be beneficial. You could receive a 18% tax offset if you contribute upto $3000 for your spouse. That is a maximum of $540 To qualify your spouse should be under 65 years of age. If aged between 65 to 69 have worked a minimum of 40 hours over a period of not more than 30 consecutive days in the current financial year. To receive full offset your spouse must have an assessable income and reportable fringe benefits of less than $10800 in the financial year. For part rebate it should be between $10800 and $13800.
3. Split your super contributions with your spouse – Contact your financial advisor
4. Get cover through you super fund – Obtaining life and total and permanent disability insurance through your super may be cheap, simpler and more tax effective. Superannuation funds have much higher bargaining power than individuals so they get a better insurance deal in bulk from insurance providers which will be passed to fund members. More over purchasing insurance through your super allows you to pay for insurance out of pre-tax dollars.
5. Minimise capital gains tax when you sell your business – Ask your financial planner
6. Roll your super into an income stream when you retire – Ask your financial planner