Superannuation Frequently Asked Questions
What is a superannuation benefit payment?
A superannuation benefit payment is a lump sum payment from a superannuation
fund. If you are over age 60, your superannuation benefit payment is tax-free.
If you are under age 60, your superannuation benefit payment will comprise two different components.
This component is usually sourced from after tax income, such as personal
contributions for which a tax deduction has not been claimed. Lump sum tax is not
payable on this component and it is not included in your assessable income.
This component is usually sourced from before tax income such as salary sacrifice
and superannuation guarantee payments, for which employers can claim a tax
If you take your superannuation benefit payment before age 60, the taxable
component is included in your assessable income, however the tax payable is limited
to the rates shown below:
- Under age 55: 20 per cent + 1.5 per cent Medicare levy
- Age 55 – 60:
- First $150,000: Tax-free
- Excess over $150,000: 15 per cent + 1.5 per cent Medicare levy.
Note: You can defer tax by rolling your lump sum over to another super fund, or you
can roll your lump sum into a retirement income stream, from which you can receive
a regular income in retirement.
What is Super and what does it mean to me?
Superannuation is a tax-effective means of saving for retirement by putting aside
and investing money during your working life.
An employer and / or employee usually make superannuation contributions into a superannuation fund that is regulated by legislation. As of 1 July 2013, the minimum contribution level is 9.25% of your salary. This contribution is known as the 'Superannuation Guarantee (SG)'.
Superannuation savings are pooled together and invested in different sectors (e.g. property, cash, fixed interest, equities etc.). By making an informed investment decision, you are able to determine your exposure to each of these sectors.
- help provide you with a financially comfortable and secure retirement;
- assist you with long term savings;
- allow you to take advantage of favourable tax treatment of superannuation contributions and benefits; and
- allow you to take advantage of insurance offered through your plan.
What is the maximum I can invest in super?
The answer to this question depends largely on the source of the money you are
investing - in particular whether any tax has already been paid on it.
There are caps on the amount you can contribute to your superannuation each financial year that are taxed at lower rates. If you contribute more than these caps you may have to pay extra tax.
The cap amount and how much extra tax you have to pay depends on your age and whether the contributions are concessional (before tax) contributions or non-concessional (after tax) contributions.
The ATO fact sheet Super contribution limits - what you need to know is available for you to download and print out.
Summary of types of contributions
Who can invest in super?
You can! Subject to certain contribution caps, anyone under 65 can invest in their own superannuation. Contributions can be made with:
- After tax income (voluntary contributions). You may be able to claim a tax deduction for these contributions. You may also qualify for a Government co-contribution (see below), and/or
- Pre-tax income. Typically this involves a salary sacrifice arrangement with your employer, whereby you direct some of your pre-tax income into super.
Your employer can. Employers are generally obliged to pay a percentage of an
employee’s salary to superannuation, and may contribute more if they wish, up to certain maximums.
- Superannuation Guarantee (SG) and award contributions are compulsory amounts paid into your account by your employer (if you qualify). The amount paid is set by legislation and is a percentage of your gross income.
- Your employer can make extra contributions to your super account too, up to certain maximums.
Your spouse can. If you are under age 70, you can make contributions on behalf of your spouse, up to certain maximums.
Why should I save through Super?
Whether you've just started working, or are rapidly approaching retirement, it's never too early - or too late - to start saving for your retirement. Many people put off planning their retirement: it's too far away, paying off the house takes priority, or they simply do not know where to start. But the early bird does get the worm...in fact, it could cost you more if you wait too long before starting your retirement savings.
While the government does provide support to retirees through programs like the Age Pension, the population as a whole is aging. This means that there are fewer people working to support these government schemes. This may mean that qualification criteria to receive these pensions become more difficult to meet and you may have to rely purely upon your savings to fund your lifestyle in retirement. We are now living longer, which means that our retirement savings or superannuation also has to last longer.
How do I select a suitable investment portfolio?
Selecting an appropriate investment portfolio to invest your superannuation in is an important factor in planning for your retirement. Understanding some basics may assist you to make the right decision to achieve long term financial security.
Investing principles: time
The length of time you are planning to invest in a portfolio may affect your investment decision. If you are about to retire or redeem your retirement accumulation, you should think about investing in a way that involves minimising volatility. That is, making sure there is little chance of the value of your investment fluctuating downwards over the remaining time of your investment by choosing an appropriate portfolio. If your superannuation investment is for the longer term, you can generally afford to include a component which may have greater risk with the objective of achieving higher investment returns.
Investment principles: risk v return
A trade-off exists between risk (the degree of security and volatility provided by the portfolio's assets) and the investment return from the portfolio you choose. Lower risk generally means lower long-term returns. Higher risk generally means potentially higher returns in the longer term, but greater risk of volatility and negative return, that is greater risk of short-term negative returns.
Investment principles: effect of inflation
If the expected portfolio return is lower than the inflation rate, the real value of your investment will be eroded. The amount of a portfolio's return above inflation is called the real rate of return. Any investment providing a rate of return above the inflation rate is generally thought to be working well for you as it is maintaining its buying power.
Investment principles: diversification
The returns from all investment markets are cyclical and reflect changing economic conditions, and in particular, the outlook for inflation and consumer confidence. Investing in a diversified portfolio, one that is exposed to assets in a variety of investment markets (sectors) may help to reduce the overall risk associated with your investment.
How can I maximise my super?
Working out how much you will need to fund your retirement may not be easy but generally, you should allow for at least 60% of your pre-retirement income each year. If you want to improve your standard of living in retirement, you'll possibly need more.
Remember that when you've retired, you may save money on work-related costs, but basic living expenses will be the same, and you may even choose to spend more on your leisure activities and interests. Longer term, be aware of rising health and medical costs, as well as the impact of inflation on your savings. Thus maximising your superannuation can be an important factor in your investment strategy.
Making additional contributions to your super fund, is an easy way to grow your
super. There are two principal ways to do this:
Salary sacrificing is where your employer, on your behalf, makes additional pre-tax contributions into your superannuation fund, which reduces your taxable income. This method is generally more tax effective for those individuals with a higher marginal income tax rate, as tax on these additional super contributions is paid at 15 per cent.
An alternative to salary sacrificing is to make your own contributions. No tax is
deducted from these contributions as they have been made from your after-tax
salary. Upon retirement there is no tax payable on these contributions.
If you are employed or self-employed, under age 71 and earning less than $$48,516 (2013-14) per annum, you may be eligible for a Government co-contribution of up to $1,000 per annum. You need to meet a number of criteria to qualify, including making a personal contribution into superannuation.
If your spouse is earning less than prescribed limits or not working, you are able to contribute to their superannuation and take advantage of certain tax benefits.
Consolidate your super
If you have several superannuation accounts, this may mean a duplication of fees and charges and paperwork. An easy way to manage your super is to consolidate all your superannuation into one account.
When can I access my super?
Because superannuation is designed to support you in your retirement, there are some restrictions on accessing your superannuation savings. The Commonwealth Government requires that certain superannuation entitlements are 'preserved'.
These entitlements must remain in a regulated superannuation fund, deferred
annuity, retirement savings account (RSA) or approved deposit facility until one of the following events occur:
- You reach age 65;
- Permanent or temporary incapacity established to the satisfaction of the Trustee;
- Severe financial hardship established to the satisfaction of the Trustee based on specific guidelines;
- APRA approves early release (compassionate grounds);
- Permanent departure from Australia by eligible temporary residents;
- Termination of gainful employment (where preserved benefits are less than $200;
- You reach preservation age (see table below) and commence a noncommutable income stream. There is no requirement to cease a gainful employment'
- You reach age 60 and cease a gainful employment;
- Permanent retirement on or after you reach your preservation age (see table below).
|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|
|On or after 1 July 1964||60|
How is my preserved benefit determined?
Up to 30 June 1999, your preserved benefits are made up of the following:
- Your own tax deductible contributions;
- All employer contributions including Superannuation Guarantee and award contributions;
- Preserved benefits transferred or rolled over from a previous fund;
- Any interest earned on the above; and
- Less any fees and charges.
From 1 July 1999, all contributions and investment earnings (including
earnings on non-preserved amounts) are preserved. Employer Eligible
Termination Payments rolled over after 30 June 2004 are also preserved.
How do I find my lost superannuation accounts?
Often people lose track of their superannuation funds, especially when changing jobs. If you have lost track of your superannuation from a previous employer, the Australian Taxation Office has a Lost Members Register. Simply visit www.ato.gov.au or ring the Superannuation Help Line on 131 020. Alternatively, you can ask your current superannuation provider to search for your super in the register.
What options do I have when I retire?
There are several options available to you upon receiving your superannuation benefit. While it's one thing to have a lump sum of money saved for your retirement, it's another to have a regular cashflow to meet ongoing expenses throughout your retirement years. Some ways you may achieve an income stream are:
- Withdrawing your super as a lump sum and investing those funds in income bearing investments;
- Retaining your super benefit within the superannuation system and drawing a regular income from those savings (ie a pension or annuity);
- Retaining your super benefit within the superannuation system and drawing ad hoc lump sums when required;
- Qualifying for social security, age pensions, service pensions or other benefits;
- A combination of the above.
I’m a temporary Australian resident - how can I access my super?
If you have entered Australia on an eligible temporary resident visa you may claim your superannuation benefits once you have permanently departed Australia. You can claim your super benefit from either:
- directly from your super fund, or
- from the Australian Taxation Office (ATO), if you departed Australia more than six months ago.
Eligible former temporary residents
You are considered an eligible former temporary resident if:
- you have departed Australia, and
- your temporary visa has been cancelled or has expired.
However, you cannot be:
- a holder of a temporary or permanent visa
- an Australian or New Zealand citizen
- a permanent resident, or
- a holder of a Subclass 405 (IR) visa or Subclass 410 (Retirement) visa as described in Schedule 2 to the Migration Regulations 1994.