Should Aussies be able to access super for a startup?

Should Aussies be able to access their super for a start up?

Superannuation in Australia can be used for many purposes. As well as being able to access it for emergencies, many Australians also use their super in order to grow their investment portfolios. What if they were also able to use it to start a business?

After all, if superannuation is about growing one’s wealth for retirement and putting a little something back into the economy, then this would seem like a no-brainer.

That’s essentially what Scott Farquhar, co-chief executive of software company Atlassian, argued in October, when he spoke at the 2014 JJC Bradfield Lecture.  Mr Farquhar outlined the way in which smarter superannuation rules could help Australia retain local business talent.

Australian businesses need capital

While venture capitalism and “angel investing” — wealthy individuals investing in young businesses — is trending up, there is still a vacuum of capital in the Australian market, Mr Farquhar told the audience. 

Indeed, according to findings from 2013 by McCrindle Research, only slightly more than half (51 percent) of all new business starts survive their first four years. 

“For many Australians, the entrepreneurial dream is still alive but as demonstrated by the survival rates of new businesses, without better support, only a minority will achieve success,” the report stated. 

Similarly, the Australian Bureau of Statistics revealed this year that during the 2012-13 financial year, the exit rate of all Australian businesses grew to 14.1 per cent, up 1 percent from the previous year — or 22,190 businesses. 

It’s therefore clear that businesses in Australia could benefit from an added injection of capital to support them. And this is not just in their early, fledgling years. According to Mr Farquhar, it was particularly difficult for a company to find local financing once they moved past an early stage. 

Superannuation a key source of capital

Mr Farquhar stressed that Australian superannuation was essentially one, large source of capital sitting unused. At the moment, it totals $1.8 trillion worth of savings, he pointed out, while only 0.0006 percent of it was invested venture capital. By contrast, the US puts approximately 2 percent of its pension funds toward venture capital. 

“So we have one of the best savings pools in the world, and we should make it easier to invest it in areas that will have huge productivity gains for the nation,” Mr Farquhar said. 

He went on to stress that current disclosure laws were making it tougher for superannuants to invest in start-ups, by requiring them to not only disclose the details of what funds they invest in, but the investments those funds in turn make. Mr Farquhar suggested this rule be scrapped. 

“Without this, we will further erode the capital base, see the funding move offshore, and we will see more of the promising start-ups of tomorrow follow,” he concluded. 

If superannuation holders have greater leeway to invest their money in smart, productive areas, as Mr Farquhar points out, the outcome could well be a win-win-win — for the investor, for the business and for the wider Australian economy.

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Learn more about superannuation

How many superannuation funds are there?

There are more than 200 different superannuation funds.

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 do you find superannuation?

Lost superannuation refers to savings in an account that you’ve forgotten about. This can happen if you’ve opened several different accounts over the years while moving from job to job.

You can use your MyGov account to see details of all your superannuation accounts, including any you might have forgotten. Alternatively, you can fill in a ‘Searching for lost super’ form and send it to the Australian Taxation Office, which will then search on your behalf.

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.

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 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.

How much is superannuation?

Superannuation 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.

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.

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 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.

Is superannuation paid on overtime?

As the Australian Taxation Office explains, there are times when superannuation is paid on overtime and times when it isn’t.

Here is the ATO’s summary:

Payment type Is superannuation paid?
Overtime hours – award stipulates ordinary hours to be worked and employee works additional hours for which they are paid overtime rates No
Overtime hours – agreement prevails over award No
Agreement supplanting award removes distinction between ordinary hours and other hours Yes – all hours worked
No ordinary hours of work stipulated Yes – all hours worked
Casual employee: shift loadings Yes
Casual employee: overtime payments No
Casual employee whose hours are paid at overtime rates due to a ‘bandwidth’ clause No
Piece-rates – no ordinary hours of work stipulated Yes
Overtime component of earnings based on hourly-driving-rate method stipulated in award No

What are the age pension's residence rules?

On the day you claim the age pension, you must be in Australia and you must have been an Australian resident for at least 10 years (with no break in your stay for at least five of those years). The following exceptions apply:

  • You’re exempt from the 10-year rule if you’re a refugee or former refugee
  • You’re exempt from the 10-year rule if you’re getting Partner Allowance, Widow Allowance or Widow B pension
  • You can claim the age pension with only two years of residency if you’re a woman whose partner died while you were both Australian residents
  • You might be able to claim the age pension if you’ve lived or worked in a country that has a social security agreement with Australia

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 superannuation when I change jobs?

You can keep your superannuation fund for as long as you like, so nothing happens when you change jobs. Please note that some superannuation funds have special features for people who work with certain employers, so these features may no longer be available if you change jobs.