Superannuation, or Super, is a good long-term savings plan that will provide you with an income when you retire. For most Australians, Super will be their main form of retirement income. Superannuation Guarantee (or SG payments) is Government-supported and is compulsory for employees. Your retirement may be a long way off, or it may be just around the corner – either way, it’s important to ensure that you can maintain a good lifestyle after retirement.
Contributions
Employees currently pay (9.5%) of their salaries as of 1st July 2014. This rate is set to increase gradually to reach 12% by 2020.
- 2014 – 2015: 9.5%
- 2015 – 2016: 10%
- 2016 – 2017: 10%
- 2017 – 2018: 11%
- 2018 – 2019: 11.5%
- 2019 – 2020: 12%
You are also encouraged to put aside additional funds into superannuation (there are tax benefits to this). Superfund earnings are taxed at 15%, which makes it one of the most tax effective investments.
During your working life you make contributions to your super fund and the earnings you receive are reinvested, building up the value over time. The money that you put into your super fund must generally stay there until you reach retirement.
Preservation Age
Your preservation age will determine when you can access your money, even if you have not retired. It is based on your date of birth and ranges between 55 and 60. By 2025, all Australian workers wishing to access their superannuation would be at least 60 years old.
- Born before July 1960: Preservation age is 55
- Born between 01 July 1960 – 30 June 1961: Preservation age is 56
- Born between 01 July 1961 – 30 June 1962: Preservation age is 57
- Born between 01 July 1962 – 30 June 1963: Preservation age is 58
- Born between 01 July 1963 – 30 June 1964: Preservation age is 59
- Born after 30 June 1964: Preservation age is 60
Government rules, prevent people for accessing their Superannuation money, before they reach the preservation age, there are specific circumstances that will allow it.
- Severe financial hardship
- Compassionate grounds, such as having to have medical treatment not covered, or not available through Medicare.
Access
Before you can access your super you need to meet one of the conditions below:
- Reach preservation age and retire.
- Reach preservation age and continuing to work.
- Change jobs on or after 60 years of age.
- Reach 65 years of age.
Is compulsory super enough to meet my retirement needs?
While Australian employers are required to contribute at least 9.5% of your salary to superannuation you need to work out if this will be enough for you to live comfortably in retirement? The amount of money you will need depends on your individual circumstances, such as your current age, current income, planned retirement age, desired retirement income and current super balance.
Generally, superannuation benefits fall into three categories:
- Preserved benefits.
- Restricted non-preserved benefits.
- Unrestricted non-preserved benefits.
Preserved benefits are benefits that must be retained in a superannuation fund until the employee’s ‘preservation age’. Currently, all workers must wait until they are at least 55 before they may access these funds.
Restricted non-preserved benefits although not preserved, cannot be accessed until an employee meets a condition of release, such as terminating their employment in an employer superannuation scheme.
Unrestricted non-preserved benefits do not require the fulfilment of a condition of release, and may be accessed upon the request of the worker. For example, where a worker has previously satisfied a condition of release and then decides not to take the money in their superannuation fund.
Tax
Investing in superannuation will reduce your income tax liability, you could possibly receive and Age Pension while still receiving supplementary income.
Compulsory contributions are taxed at a lower rate of 15%, more for higher income earners.
Should you choose to make additional payments at the same rate of your salary, your employer must agree, without the employer’s consent, additional payments are taxed at full income tax rates and subject to different rules. There was a law passed in March 2014, that regulates the Self Managed Super Funds.
Should you have any queries or concerns about your Super, please contact your financial adviser.