RateCity.com.au
powering smart financial decisions

TMD

Showing superannuation funds based on investment performance of
and a super balance of

Embed

Superannuation funds we compare at RateCity

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.

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

What superannuation details do I give to my employer?

When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You should also provide your tax file number – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

What will the superannuation fund do with my money?

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

Is superannuation compulsory?

Superannuation is compulsory. Generally speaking, it can’t be touched until you’re at least 55 years old.

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.

How does the age pension work?

Most Australians who are of retirement age can qualify for the age pension. However, depending on the size of your assets and post-retirement income, you might be entitled to only a reduced pension. In some instances, you might not be entitled to any pension payments.

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.

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 many superannuation funds are there?

There are more than 200 different superannuation funds.

How do you claim superannuation?

There are three different ways you can claim your superannuation:

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

Two rules apply if you choose to receive an account-based pension, or income stream:

  • You must receive payments at least once per year
  • You must withdraw a minimum amount per year
    • Age 55-64 = 4%
    • Age 65-74 = 5%
    • Age 75-79 = 6%
    • Age 80-84 = 7%
    • Age 85-89 = 9%
    • Age 90-94 = 11%
    • Age 95+ = 14%

If you want to work out how long your account-based pension might last, click here to access ASIC’s account-based pension calculator.

Is superannuation paid on unused annual leave?

If your employment is terminated, superannuation will not be paid on unused annual leave.

Am I entitled to superannuation if I'm a part-time employee?

As a part-time employee, you’re 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

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.

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 choose a superannuation fund or does my employer choose one for me?

Most people can choose their own superannuation fund. However, you might not have this option if you are a member of certain defined benefit funds or covered by certain industrial agreements. If you don’t choose a superannuation fund, your employer will choose one for you.

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.

How is superannuation calculated?

Superannuation is calculated at the rate of 9.5 per cent of your gross salary and wages. So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top 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.

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.

Am I entitled to superannuation if I'm a casual employee?

As a casual employee, you’re 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