How to boost your superannuation

How to boost your superannuation

For most people, superannuation is something they’re happy to have but don’t give a lot of thought to.

Yet as Australians live longer – retired men are expected to live to 86 and women to 90 – we may be running the risk of outliving our superannuation.

“If you retire at the traditional age of 65, you have at least another 20 years to fund,” says Michael Nowak, adviser & partner at Joe Nowak Financial Services Group and national president of the Association of Financial Advisers. “It’s important to take steps to ensure you will have enough funds to last you through retirement.”

Thankfully, it’s never too late to take charge of your super. Here are some practical tips to ensure you retire with the maximum possible retirement fund.

Take an interest in your super

“From your first job you must own your super to maximise your long-term retirement outcome,” Nowak says. “Take an interest in your super and watch it grow. It’s unlikely you’ll take any steps to maximise your super until you’ve taken an interest in where the money goes and how it can grow.”

Look into the benefits of your current superannuation fund and investigate alternative options if it’s not likely to deliver the best result come retirement time. Competition in the super industry is delivering innovations, such as ING Direct’s relatively new Living Super product – the first balanced option available to Australians with no administration or management fees.

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Consolidate into one super account

Unless you’re just entering the workforce, you’ve likely had more than one job and, in most cases, that means more than one superannuation account. Consolidating multiple accounts into a single fund will boost your overall balance and save you a ton on fees – not to mention make it easier to manage.

“You may be surprised and even inspired by the amount of super you actually have when you put it all together. My first port of call to find my funds would be the ATO’s SuperSeeker or seek advice,” Nowak says.

Don’t ignore the tax benefits

“One of the most attractive features of super is the tax benefits,” Nowak adds. “In the accumulation phase, your concessional contributions [the 9.25 percent salary contribution by employers and salary sacrifice] and investment earnings are taxed at 15 percent rather than your marginal tax rate (up to 46.5 percent). It gets even more attractive in the pension phase if you are over 60, with your earnings and withdrawals being tax free. Seriously, you don’t get much better than that.”

Make extra contributions

Superannuation Guarantee Contributions are currently 9.25 percent and increasing to 12 percent by 2015, but you can boost your final retirement fund by making additional contributions. “There are advantages, such as the contribution tax concessions already mentioned, plus the power of compound interest cannot be underestimated over time,” Nowak says.

To demonstrate the benefit of extra contributions, Nowak cites the following example: a 40-year-old on an $80,000 salary with a current super balance of $100,000 will retire at 65 with a projected balance of $1.075 million. If that person adds a salary sacrifice of $2,500 per year into their super, they will retire at 65 with $1.215 million – a difference of $140,000. The reduction in their annual salary due to the $2,500 salary sacrifice contribution would be a modest $1,650.

At the moment, so-called non-concessional (after-tax) contributions are capped at $150,000 per year (or a $450,000 lump sum over three years). Concessional contributions are capped at a yearly sum of $25,000 for those under 60, and $35,000 for those over 60.

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Learn more about superannuation

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 superannuation contributions?

For employees, there are two types of reportable superannuation contributions:

  • Reportable employer super contributions your employer makes for you
  • Personal deductible contributions you make for yourself

Is superannuation taxed?

Superannuation is taxed. It is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

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.

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.

Is superannuation included in taxable income?

Superannuation is not included when calculating your income tax. So if you have a salary of $50,000, your assessable income would be $50,000, not $50,000 plus superannuation.

That said, superannuation itself is taxed. It is generally taxed at 15 per cent, although if you earn less than $37,000, you will be reimbursed up to $500 of the tax you paid.

What happens if my employer goes out of business while still owing me superannuation?

If your employer collapses, a trustee or administrator or liquidator will be appointed to manage the company. That trustee/administrator/liquidator will be required to pay your superannuation out of company funds.

If the company doesn’t have enough funds, in some cases company directors will be required to pay your superannuation. If the directors still don’t pay, the Australian Securities & Investment Commission (ASIC) might take legal action on your behalf. However, ASIC might decline to take legal action or might be unsuccessful.

So there might be some circumstances when you don’t receive all the superannuation you’re owed.

When did superannuation start in Australia?

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.

What is the superannuation rate?

The superannuation rate, or guarantee rate, is the percentage of your salary that your employer must pay into your superannuation fund. The superannuation guarantee has been set at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

When can I access my superannuation?

You can withdraw your superannuation when 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 – which is different to the pension age – is based on date of birth. Here are the 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

A transition to retirement allows you to continue working while accessing up to 10 per cent of the money in your superannuation account at the start of each financial year.

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 much is superannuation in Australia?

Superannuation in Australia is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Do I have to pay myself superannuation if I'm self-employed?

No, self-employed workers don’t have to pay themselves superannuation. However, if you do pay yourself superannuation, you will probably be able to claim a tax deduction.

What happens to my insurance cover if I change superannuation funds?

Some superannuation funds will allow you to transfer your insurance cover, without interruption, if you switch. However, others won’t. So it’s important you check before changing funds.

How is superannuation regulated?

The Australian Prudential Regulation Authority (APRA) regulates ordinary superannuation accounts. Self-managed superannuation funds (SMSFs) are regulated by the Australian Taxation Office.