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Learn more about superannuation

Typically, superannuation funds have three types of insurance for members:

  • Death cover (also known as life insurance) – This pays a benefit to your beneficiaries when you die
  • Total and permanent disability (TPD) cover – This pays you a benefit if you become seriously disabled through illness or injury, and are unlikely to ever be able to work again
  • Income protection (IP) cover – This pays you an income stream for a specified period if you are unable to work due to temporary illness or disability.

Your income protection policy will outline how your insurance covers you. This is usually for a specified percentage of your current regular income (usually 75 per cent of your gross salary) and for a set length of time.

If you are unable to work because of illness or injury, you can make a claim and your income protection insurance will activate. There is normally a waiting period of 30 to 180 days before benefit payments begin, and payments are usually limited to a maximum of two years. After the waiting period, the policy will pay you the agreed amount either until you are able to return to work or for the specified period of time – whichever is sooner.

Who should get income protection insurance?

Income protection is particularly useful for households where one person provides the income. Obviously, if that person is temporarily out of action due to illness or disability, there will be financial strain as a result. This is especially so if you are paying off a mortgage or other significant loans.

Because everyone’s situation is different, it’s worthwhile comparing different types and/or levels of income protection insurance, and to work out your own needs, should you be unable to work for a while. For example, someone with a family and a mortgage will need more cover than a single person living alone.

Remember, too, that you can only insure your income from personal effort or employment. That means you can’t insure income from investments (e.g. shares, long term deposits). The policy will also not pay out for redundancy or unemployment.

Also, if you will have enough money to manage for a while without claiming on your insurance (for example you’ll receive sick pay from your employer), then you may be able to save on your income insurance premiums by choosing a longer waiting period before payments begin.

How much does it cost?

The cost of income insurance will vary, depending on a number of factors, such as:

  • Your age
  • Your job
  • The percentage of your income that you’d like to cover
  • Your choice of waiting period length
  • The illnesses and injuries you need covered
  • Your current health, weight and family medical history
  • Whether you smoke or have previously smoked

What are the pros and cons of income protection insurance through my super?

As with any type of insurance through your super fund, there are factors worth considering. Let’s look at a few:

Pros

  • Usually cheaper – Super funds purchase insurance policies in bulk, so they can offer better deals on premiums. This means that, even when money is tight, you can still get cover
  • Easier to manage – Premiums are deducted automatically
  • May not need a health check – Depending on the fund and the amount of cover you’re after

Cons

  • Limited cover – Not all types of insurance, or levels of cover, are offered
  • Not portable – If you move to another super fund or your employer's super contributions stop, your cover may stop without notice
  • Ends around retirement age – Insurance coverage through super often ends when you reach a certain age (usually 65 or 70), while external policies may cover you for longer.
  • Reduces your super balance – The cost of your insurance premiums are deducted from your super balance, reducing the money available for your retirement
  • Added complexity When you make a claim, you need to satisfy the trustee of the super fund as well as the fund’s insurer in order to receive a payout. In other words, the benefit is not paid directly to you, but to your fund, which then decides whether to release it to you.

You should compare the terms and conditions of the income protection policies on offer from your super fund with those available from outside insurers.

If you decide to obtain income protection insure, make sure you review your policy from time to time, to ensure that your premiums are competitively priced and that the cover you have is still appropriate. For example, you may want to increase your cover if:

  • You’re going to become a parent
  • Your partner stops working
  • You’re taking out a new mortgage

On the other hand, you might be in a position to decrease your level of cover if you start a new job and it comes with increased sick pay.

Frequently asked questions

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 much extra superannuation can I add to my fund?

There is an annual limit of $25,000 for concessional contributions – that is, money paid by your employer and extra money you pay into your account through salary sacrificing. There is also a limit on non-concessional contributions. Australians aged between 65 and 74 have a limit of $100,000 per year. Australians aged under 65 have a limit of $300,000 every three years.

What are government co-contributions?

A government co-contribution is a bonus payment from the federal government into your superannuation account – but it comes with conditions. First, the government will only make a co-contribution if you make a personal contribution. Second, the government will only contribute a maximum of $500. Third, the government will only make co-contributions for people on low and medium incomes. The Australian Taxation Office will calculation whether you’re entitled to a government co-contribution when you lodge your tax return. The size of any co-contribution depends on the size of your personal contribution and income.

How do I combine several superannuation accounts into one account?

The process used to consolidate several superannuation accounts into one is the same process used to change superannuation funds. This can be done through your MyGov account or by filling out a rollover form and sending it to your chosen fund.

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 do I change my superannuation fund?

Changing superannuation funds is a common and straightforward process. You can do it through your MyGov account or by filling out a rollover form and sending it to your new fund. You’ll also have to provide proof of identity.

What is salary sacrificing?

A salary sacrifice is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Salary sacrifices come out of your pre-tax income, whereas personal contributions come out of your after-tax income.

How can I increase my superannuation?

You can increase your superannuation through a ‘salary sacrifice’. This is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Like regular superannuation contributions, salary sacrifices are taxed at 15 per cent when they are paid into the fund.

What is lost 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.

What is the difference between accumulation and defined benefit funds?

A majority of Australians are in accumulation funds. These funds grow according to the amount of money invested and the return on that money.

A minority of Australians are in defined benefit funds – many of which are now closed to new members. These funds give payouts according to specific rules, such as how long the worker has been with their employer and their final salary before they retired.

What fees do superannuation funds charge?

Superannuation funds can charge a range of fees, including:

  • Activity-based fees – for specific, irregular services, such as splitting an account after a divorce
  • Administration fees – to cover the cost of managing your account
  • Advice fees – for personal investment advice
  • Buy/sell spread fees – when you make contributions, switches and withdrawals
  • Exit fees – when you close your account
  • Investment fees – to cover the cost of managing your investments
  • Switching fees – when you choose a new investment option within the same fund

How do I choose the right superannuation fund?

Different superannuation funds charge different fees, offer different insurances, offer different investment options and have different performance histories.

So you need to ask yourself these four questions when comparing superannuation funds:

  • How many fees would I have to pay and what would they cost?
  • What insurances are available and how much would they cost?
  • What investment options does it offer? How would they match my risk profile and financial needs?
  • How have these investment options performed historically?

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 is MySuper?

MySuper accounts are basic, low-fee accounts. If you don’t nominate a superannuation fund, your employer must choose one for you that offers a MySuper account.

MySuper accounts offer two investment options:

  1. Single diversified investment strategy

Your fund assigns you a risk strategy and investment profile, which remain unchanged throughout your working life.

  1. Lifecycle investment strategy

Your fund assigns you an investment strategy based on your age, and then changes it as you get older. Younger workers are given strategies that emphasise growth assets

What will the superannuation fund do with my money?

Your money will be invested in an investment option of your choosing.

How many superannuation funds are there?

There are more than 200 different superannuation funds.

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.

What happens if my employer falls behind on my superannuation payments?

The Australian Taxation Office will investigate if your employer falls behind on your superannuation payments or doesn’t pay at all. You can report your employer with this online tool.

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.

Am I entitled to superannuation if I'm a contractor?

As a contractor, you’re entitled to superannuation if:

  • The contract is mainly for your labour
  • 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

Please note that you’re entitled to superannuation even if you have an Australian business number (ABN).