What is Superannuation?
Personal superannuation (often simply known as super) is money that’s put aside and saved and invested while you’re working, so you can enjoy a regular income later in life when you retire. These days, the average Australian may expect around 20 years of retirement. By investing money in a superannuation fund, you’re building a nest egg to live on when you’re no longer earning a wage. And the more you put away now, the more you’ll be able to spend in your retirement.
Super grows through your working life
Knowing what superannuation is 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 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; this is commonly referred to as ‘contributing’ or ‘making super contributions’. These contributions can be made as a ‘pre-tax’ contribution which means you will pay less tax.
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 anything from cash and fixed interest, with the annual returns helping to grow your super balance, to investments with different levels of risk.
When you can access superannuation
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).
What is preservation age?
Your preservation age is the age you can access your super if you are retired (or start a transition to retirement income stream).
If you were born before 1 July 1960 you have already reached your preservation age of 55 years. You can access your super once you have met a condition of release. If you were born after 1 July 1960 your preservation age depends on when you were born.
|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|
How much tax you pay in Super?
As a guide, before-tax, or ‘concessional’, contributions are taxed at just 15% if you earn under $300,000 per financial year, however as of 1 July 2017 this limit was reduced to $250,000 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 as of 1 July 2017), contributions to your super are taxed at 30%.
|Employer contributions *||15%|
|Salary sacrifice and other super contributions you’ve claimed a tax deduction on||15%|
|Voluntary after-tax contributions **||Not Taxed|
|Government co-contributions||Not Taxed|
|Transferring or consolidating your super||Not Taxed|
|Super fund investment earnings||15%|
|Exceeding $250,000 income and super contributions per year||30%|
|Withdrawing money from your super fund at 60 or above||Not Taxed|
* If you earn less than $37,001 per year, up to $500 of the tax paid on your concessional super contributions will be refunded into your super account.
** These contributions are not taxed because it is from your after-tax earnings or take home pay.
Transition to Retirement (TTR)
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.
Seeking super advice
It’s worth taking an active interest in your super savings during your working years. It’s your money and your super’s investment performance over time will impact how much you eventually have in retirement. FAA have licensed Financial Advisers that can help you so please get in contact and booked an obligation free appointment today.