Superannuation - The key facts

Governments constantly change what are already unnecessarily complex rules. Below we attempt to bring you the basics, but you should remember there are always conditions and refinements and there may also be changes since this was written.

What is superannuation?

Superannuation is savings put aside for your retirement or if you become an invalid or for your beneficiaries upon your death.

Why should I contribute to super?

So you have savings for retirement and because it is a great form of investment for four primary reasons:

  there are substantial tax concessions on contributions for most people

  the income from a super fund is subject to only 15% tax (zero tax for the over 65s unless the fund earns more than $100,000 pa) and

  eventually you can take it all out as a tax-free pension or lump sum.

  also employers must contribute 9.25% of salaries to super, rising to 12% by 1 July 2019.

What happens to the money?

Your super is usually invested in shares, property, fixed interest securities or cash.

Can I decide what my super is invested in?

Generally you can decide whether you want your super in growth, balanced or conservative funds and in what proportions.

Is it compulsory?

Yes, as a general rule employers must contribute 9.25 per cent (rising to 12% between 1 July 2014 and 1 July 2019) of salaries to super.

How much can I contribute?

Concessional: For the 2012/13 year, the concessional contributions cap is $25,000 for all age groups. For the 2013/14 year it remains at $25,000 except for the 60 years and over where it is $35,000. On concessional contributions you pay 15% tax, but may get this back (up to $500) if you are earning less than $37,000 pa. Over 65s must satisfy work tests.

Non-concessional: For the 2012/13 and 2013/14 years, the non-concessional contributions cap is $150,000 for all age groups. (Non-concessional or undeducted contributions come from your after-tax income and no tax is payable upon contribution to your super fund.)  There is a bring-forward rule (the following 2 years) allowing you to make up to $450,000 in non-concessional contributions in 2013/14 if you are under 65.

Get advice before you make contributions, because if you get it wrong you can be hit with penalty tax at 46.5%.

Does the government put money in?

Yes the Australian Tax Office makes what is called a co-contribution (matching your own contribution at the rate of 50 cents for every dollar) of up to $500 a year providing you earn less than $33,516 in the 2013/14 tax year. This co-contribution reduces if your income is above $33,516 and cuts out altogether at an income level of $48,516 pa. 

Do I save tax?

Yes, significant tax concessions make super an attractive form of saving.

Does my super fund pay tax?

Yes it does at 15% of the contributions it receives from you (although you may get up to $500 of this back if you are on a low income) and at 15% on investment earnings unless your super fund is in pension phase. If it is in pension phase, investment earnings are not taxable unless earnings are above $100,000 a year in which event a new tax of 15% is imposed on the excess.

Do I pay tax on benefits from my super fund?

Benefits paid from a taxed super fund are free of tax if you are 60 or over. If you take the benefit as an income stream you won’t pay tax on that. But if you take a lump sum from your Super Fund and then invest it as personal savings, you will be up for tax on that investment income.

How much super do I need?

There are many variables but we apply 7.5% to total super to calculate expected annual inflation-protected income for those retiring at 65, eg $600,000 should yield $45,000 pa, $1,000,000 should yield $75,000 pa.

When can I get my super?

As a general rule and at present you can access your super when you reach preservation age (see table below) and retire or when you turn 65, even if you are not retired. But there are other circumstances when you can get it earlier.

Note that the age pension age will be gradually increased to 67 years of age. The new pension changes will apply to new pension entrants from 1 July 2017, which will mean that it applies to people who are 57 years of age or younger on July 2009.

What happens to my super if I die early?

Most funds let you nominate who you want your death benefit paid to, either as a ‘non-binding’ or ‘binding’ nomination. The trustee of the fund will exercise discretion about who it is paid to if a ‘non-binding’ nomination. Be aware that if it’s paid to people who are not your dependants (for tax purposes this includes children over 18) it may be taxed.