Superannuation has existed in Australia since the early 1900's. As our population ages, the rules around your Superannuation change. It is often difficult to keep track of the basics of Super, so we have created this quick guide to answer some of your questions.
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1: What is Super?
Superannuation is a tax advantaged savings mechanism for retirement. Contributions can be made by an employer or a self employed person and claimed as a tax deduction. This means you keep more of what you earn. Someone earning $95,000 per annum who's employer puts $5,000 into superannuation gets $4,250 in their super fund compared to $3,050 in the hand. An extra $1,200 to save towards retirement.
2: How much is my employer's contribution?
In Australia, the Super Guarantee is 9.5%, which is the legal minimum contribution required to be made by employers. This contribution will increase to 12% over the next few years.
3: How do I choose a Super fund?
Most people can choose the super fund they want their employer contributions paid into. You may also be able to choose how your savings are invested. Some fund investment strategies offer higher returns with higher risks, while others offer greater security for your money but with lower returns.
Compare the default fund of your employer with at least two other funds. Try to compare it with different types of funds (outlined below). There are many super fund comparison sheets available on the internet for you to use to make your choice. It should be noted that you cannot make your employer change your super fund more than once a year.
4. What Types of funds are there?
There are five basic types of funds:
- Industry funds: These funds are sometimes open to everyone. Otherwise, you can join if you work in a particular industry or under a particular industrial award and your employer signs up with the fund.
- Retail funds: These funds are run by financial institutions and are open to everyone.
- Public sector funds: These funds are generally open to Commonwealth, state and territory government employees. Public sector employers may offer defined benefit funds and constitutionally protected funds (CPFs) to their members.
- Corporate funds: These funds are generally only open to people working for a particular employer or corporation. They may offer defined benefit funds to their members.
- Self-managed super funds (SMSFs): SMSFs work like any other super fund, but the responsibility of managing them, including their investment decisions and legal responsibilities) rests solely with the trustee (you). Establishing and operating an SMSF is a major financial decision and you should first discuss your personal circumstances with a qualified financial planner.
5: What is a personal contribution?
You can give your super fund a boost by adding extra funds into your account.
"Personal contributions are non-concessional (after-tax) contributions and will count towards your non-concessional contributions cap unless you have claimed a tax deduction for them."
You need to be aware that limits apply for personal contributions and exceeding these limits can lead to significant tax penalties. Always seek advice before making personal contributions.
6: How do I consolidate my Super funds?
You can combine your super through an online service, accessible via myGov.com Combining multiple super accounts means you don't have to pay multiple sets of fees and charges.
7: At what age can I access my Super?
If you have reached your preservation age and have retired, you are able to withdraw your super in either a lump sum, a monthly payment, or a combination of both. The following table shows the age at which you can access your super.
Once you reach 65 you can access your super regardless of whether you have retired or not.
8: What if I move overseas?
There are many reasons people move overseas, career opportunities, adventure, new prospects or even returning home. If you are considering the move to a new country, there are some things you should consider when it comes to your super.
If you are an Australian citizen or permanent resident, the rules applying to your super will remain the same. This means that you wont be able to access your super until you reach your preservation age.
If you are working overseas for an Australian employer, they may still be required to contribute to your super. It is best to check the details on the ATO website for clarification.
9: Is there an alternative option?
An alternative to a Super Fund is a Retirement Savings Account (RSA).
A retirement savings account (RSA) is an account that you can transfer your super fund into once you've met a condition of release. It is similar to a savings account, but these accounts are in line with superannuation regulations and its tax advantages." (Finder.com, 2015)
If this sounds too much for you, or you would simply prefer not to have to look after this yourself, then see a financial planner for specific advice on what is best for you. If you want to talk to someone about your superannuation portfolio and retirement planning, contact Tupicoffs - The Independent Financial Planners today!