What is Superannuation?
Superannuation or Super is a long-term savings arrangement which operates primarily to provide income for retirement. Many people rely on the Age Pension but this may not provide enough income for a comfortable lifestyle.
The amount you receive from your super will depend on how much has been contributed and for how long. It will also depend on the interest rate earned by your super account and any fees that are paid.
Superannuation Funds pay less tax than normal savings accounts* and tax benefits can apply to people accessing their super in retirement.
*Unless the client’s on a tax rate <15%.
Insurance provided by superannuation
Many Superannuation Funds provide insurance. The premiums are paid for with your super savings. This insurance covers death, disability and income protection. If your super account balance is not sufficient to pay the insurance premiums, your cover may be canceled.
Who Contributes to your Superannuation?
- Your employer
- An Award
If you are employed, aged over 18 and under 70, and earn at least $450 per month before tax, your employer is required by law to make regular superannuation contributions (currently 9% of your ordinary time earnings) to a designated super fund.
Almost anyone who is paid for work is entitled to the Super Guarantee. For more information, call the Australian Tax Office on 13 10 20.
The Superannuation Guarantee Law applies to all working Australians except
- those earning below $450 within any calendar month
- people under the age of 18
- people over the age of 70
- those who are paid to do domestic or private work for 30 hours or less per week
An award sets out minimum conditions of work for workers who are covered by it. To find out if you are covered by an award contact the Department of Employment Workplace Relations and Small Business (DEWRSB) on 1300 363 264
If you are covered by an award, your employer must satisfy both the Superannuation Guarantee and the award superannuation requirements.
Voluntary and personal contributions
You may decide to make your own contributions to your super fund from your after-tax wage. These do not count towards the Superannuation Guarantee contributions your employer has to make.
Individuals making extra voluntary contributions can receive tax benefits for doing so.
Your employer may make additional superannuation contributions above the super guarantee. If you have asked your employer to take personal contributions from your salary, they must pay those contributions to the fund you choose within 28 days after the deduction was made.
Types of Super Funds
Superannuation savings can be held in many different types of super funds. Some are set up by individual businesses, some by industries, and others by major financial institutions such as life insurance companies. The fund may have private entry or it may be open to anyone qualified to contribute to superannuation. They may have fancy names and shortened names but they all hold superannuation money. Some different types of funds include:
Industry funds which are run by employer associations and/or unions solely for the benefit of members, e.g. Retail or Health industry fund
Corporate funds e.g. The HTR Company fund
Public Sector Employees Funds for government employees
Retail Master Trusts for individuals, e.g. The Small Superfund for Sam Smith
Self Managed Superannuation Funds which are established for a small number of individuals (fewer than 5) and are regulated by the Australian Tax Office, e.g. The Julie and James Ralph Superfund
Accounts with Small Sums of Money
Some special accounts can hold superannuation money but are not really Superannuation funds. These include the Retirement Savings Account (RSA) and the Superannuation Holding Account Reserve (SHAR). They are used when an employer cannot find a superannuation fund that will accept small sums of money.
Complying Super Funds
Most superannuation funds are ‘complying superannuation funds’. These funds receive special tax treatment because they follow the Government’s rules. Your employer must make contributions to a complying superannuation fund to satisfy the Superannuation Guarantee (Administration) Act 1992.
Some employees can choose their own superannuation fund while others are required to join the fund that their employer regularly contributes to. Your employer may be required to contribute to a particular fund because of an industrial award or your employer may already have a private fund set up.
Small Super accounts
If an account has $1000 or less in it, it will be ‘protected’ by law from being reduced by fees. The fees are not allowed to be more than the interest earned by the account. Funds that do not wish to ‘protect’ the account must transfer the account to another fund that will. The account holder or member must be advised that this has been done. If the fund is unable to contact the member, the member will have to be listed with the ATO’s Lost Members Register.
Access to superannuation
The government has enforced strict regulations regarding early access to preserved benefits. Exceptions are made only in very limited and restricted circumstances, such as severe financial hardship or compassionate grounds like medical treatment.
Preservation age is the age at which a person may access their superannuation balance. Your preservation age depends on your date of birth.
Born Preservation Age
Before 1st July 1960 55
1st July 1960 – 30th June 1961 56
1st July 1962 – 30th June 1963 58
1st July 1963 – 30th June 1964 59
After 30th June 1964 60