What happens to your superannuation when you’re not working?

What happens to your superannuation when you’re not working?

Superannuation generally consists of two phases; accumulation and pension or retirement. When you’re working, your superannuation fund is usually in the accumulation phase. When you stop working, you can choose to convert it to the pension or retirement phase.

You can draw an income from your super to cover all retirement expenses in the pension or retirement phase. However, you can only convert your superannuation to the retirement phase after you’ve reached your preservation age, which is currently 65 years. 

If you become unemployed before the age of 65 and aren’t receiving any employer contributions, you may wonder what happens to your super if you’re unemployed?

What happens to your super if you’re unemployed?

In most cases, there won’t be any change in your super if you’re unemployed. The only change will be not receiving any contributions from your employer to help accumulate a higher balance. Moreover, your salary continuance cover, if you have it, will no longer be valid. 

Additionally, you can’t receive any co-contribution from the Government as being employed or self-employed is one of the main criteria. If you’re part of a defined benefit superannuation scheme, your final benefit could be affected by unemployment. A defined benefit superannuation scheme uses a formula such as multiplying your salary by your years of service to calculate your benefits.

What to do with superannuation when you’re not working? 

 If you want to keep your super growing even if you’re not employed, consider making personal contributions, either regularly or as and when convenient. 

Most financial experts recommend you make a contribution equal to a minimum of 12 per cent of your last drawn salary each year. Doing this will help ensure you have sufficient funds for retirement. But, if you can’t afford that, it’s better to make smaller contributions than nothing. To make these contributions, you can use another income source, including investment dividends, an inheritance, a gift, or even income from a job where you aren’t eligible for super contributions. 

You should keep in mind the contribution caps before making any payments while making super contributions. You should determine if there are any contribution restrictions due to your age. 

Can your spouse make contributions for you?

In most cases, your spouse can make contributions into your super account if you’re unemployed. Your spouse might even receive a $540 tax rebate. Alternatively, your spouse may opt to split their employer contributions into your account at the end of the fiscal year. 

Can you access your super early if you’re unemployed? 

You can only access the funds in your super after retiring; however, you may be allowed to withdraw funds from your superannuation if you’re unemployed under the following circumstances: 

1. COVID-19 early access scheme
Due to the on-going COVID-19 pandemic, the Federal and State Government took multiple measures to help businesses and individuals overcome these challenging times, including accessing super funds.

2. Severe financial hardship
If you’re facing severe financial hardship, you could choose to apply for early release of part of your super. For example, if you’re unable to meet immediate family expenses, you can apply for an early release of your super.

3. Compassionate Grounds
Very rarely, you might be able to gain access to your super on compassionate grounds to cover your or your dependents costs for the following: 

    • Palliative care or funeral expenses
    • Home or vehicle modifications
    • Mortgage payments
    • Medical treatment and transport

4. Temporary residents departing Australia
If you’re a temporary resident in Australia, you might have to depart the country when unemployed. In such cases, you can make a claim to release your superannuation before leaving. This super release is known as the Departing Australia Superannuation Payment (DASP). You need to claim this within six months of your departure, or the expiry or cancellation of your temporary visa. 

Did you find this helpful? Why not share this article?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By submitting this form, you agree to the RateCity Privacy Policy, Terms of Use and Disclaimer.

Advertisement

Learn more about superannuation

How do you access superannuation?

Accessing your superannuation is a simple administrative procedure – you just ask your fund to pay it. You can access your superannuation in three different ways:

  • Lump sum
  • Account-based pension
  • Part lump sum and part account-based pension

However, please note that your superannuation fund will only be able to make a payout if you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

The preservation age has six different categories:

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

There are also seven special circumstances under which you can claim your superannuation:

  • Compassionate grounds
  • Severe financial hardship
  • Temporary incapacity
  • Permanent incapacity
  • Superannuation inheritance
  • Superannuation balance under $200
  • Temporary resident departing Australia

How long after divorce can you claim superannuation?

You or your partner could be forced to surrender part of your superannuation if you divorce, just like with other assets.

You can file a claim for division of property – including superannuation – as soon as you divorce. However, the claim has to be filed within one year of the divorce.

Your superannuation could be affected even if you’re in a de facto relationship – that is, living together as a couple without being officially married.

In that case, the claim has to be filed within two years of the date of separation.

Either way, the first thing to consider is whether you’re a member of a standard, APRA-regulated superannuation fund or if you’re a member of a self-managed superannuation fund (SMSF), because different rules apply.

Standard superannuation funds

If your relationship breaks down, your superannuation savings might be divided by court order or by agreement.

The rules of the superannuation fund will dictate whether this transfer happens immediately, or in the future when the person who has to make the transfer is allowed to access the rest of their superannuation (i.e. at or near retirement).

Click here for more information.

SMSFs

If your relationship breaks down, you must continue to observe the trust deed of your SMSF.

So if you and your partner are both members of the same SMSF, neither party is allowed to use the fund to inflict ‘punishment’ – such as by excluding the other party from the decision-making process or refusing their request to roll their money into another superannuation fund.

This no-punishment rule applies even if the two parties are involved in legal proceedings.

Click here for more information.

Financial consequences

Superannuation funds often charge a fee for splitting accounts after a relationship breakdown.

Splitting superannuation can also impact the size of your total super balance and how your super is taxed.

Click here for more information.

When did superannuation start?

Australia’s modern superannuation system – in which employers make compulsory contributions to their employees – started in 1992. However, before that, there were various restricted superannuation schemes applying to certain employees in certain industries. The very first superannuation scheme was introduced in the 19th century.

Can I buy a house with my superannuation?

First home buyers are the only people who can use their superannuation to buy a property. The federal government has created the First Home Super Saver Scheme to help first home buyers save for a deposit. First home buyers can make voluntary contributions of up to $15,000 per year, and $30,000 in total, to their superannuation account. These contributions are taxed at 15 per cent, along with deemed earnings. Withdrawals are taxed at marginal tax rates minus a tax offset of 30 percentage points.

Voluntary contributions to the First Home Super Saver Scheme are not exempt from the $25,000 annual limit on concessional contributions. So if you pay $15,000 per year into the First Home Super Saver Scheme, you have to make sure that you don’t receive more than $10,000 in superannuation payments from your employer and any salary sacrificing.

How do you set up superannuation?

Before you set up a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).

What is a superannuation fund?

A superannuation fund is an institution that is legally allowed to hold and invest your superannuation. There are more than 200 different superannuation funds in Australia. They come in five different types:

  • Retail funds
  • Industry funds
  • Public sector funds
  • Corporate funds
  • Self-managed super funds

Retail funds are usually run by banks or investment companies.

Industry funds were originally designed for workers from a particular industry, but are now open to anyone.

Public sector funds were originally designed for people working for federal or state government departments. Most are still reserved for government employees.

Corporate funds are arranged by employers for their employees.

Self-managed super funds are private superannuation funds that allow people to directly invest their money.

What are reportable employer superannuation contributions?

Reportable employer superannuation contributions are special contributions that an employer makes on top of the regular compulsory contributions. One example would be contributions made as part of a salary sacrifice arrangement.

How can I keep track of my superannuation?

Most funds will allow you to access your superannuation account online. Another option is to manage your superannuation through myGov, which is a government portal through which you can access a range of services, including Medicare, Centrelink, aged care and child support.

What are personal contributions?

A personal contribution is when you make an extra payment into your superannuation account. The difference between personal contributions and salary sacrifices is that the former comes out of your after-tax income, while the latter comes out of your pre-tax income.

What are ethical investment superannuation funds?

Ethical investment funds limit themselves to making ‘ethical’ investments (which each fund defines according to its own principles). For example, ethical funds might avoid investing in companies or industries that are linked to human suffering or environmental damage.

What are my superannuation obligations if I'm an employer?

Employers are required to pay superannuation to all their staff if the staff are:

  • Over 18 and earn more than $450 before tax in a calendar month
  • Under 18, work more than 30 hours per week and earn more than $450 before tax in a calendar month

This applies even if the staff are casual employees, part-time employees, contractors (provided the contract is mainly for their labour) or temporary residents.

How many superannuation funds are there?

There are more than 200 different superannuation funds.

Who can open a superannuation account?

Superannuation accounts can be opened by Australians, permanent residents and temporary residents. You’re automatically entitled to superannuation if:

  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month

When is superannuation payable?

Employers must pay superannuation at least four times per year. The due dates are 28 January, 28 April, 28 July and 28 October.