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Learn more about superannuation

Superannuation is the payment made regularly to a fund which can be accessed during retirement. Though only a small percentage of your income is contributed to your super fund every pay cycle, this adds up over time to create a nest egg by the time you reach retirement.

How much superannuation you need to retire depends on the kind of retirement lifestyle you have in mind, but what is clear is that the more you have in your superannuation fund, the more financially comfortable your retirement should be.

This is why some Australians choose to make voluntary super contributions on top of the minimum of 9.5 per cent of total income contributed to their superannuation fund by their employer.

The basics of self-managed superannuation funds

Self-managed super funds are similar to super funds managed by financial institutions and professional investment managers in that they are funds where you keep, and from which you can invest, your savings.

The main difference, however, is that self-managed super funds are not managed by professional investment managers – instead, they are private superannuation funds which are regulated by the ATO and managed independently by you.

If you opt to set up a self-managed super fund, you are responsible for all decisions relating to the fund, and are expected to be compliant with the laws governing super funds. Self-managed super funds allow for up to four members who must all be trustees, and the fund’s sole purpose must be to providing for the retirement of members.

Here, in the words of ASIC, the financial services regulator, is what you must do if you run a self-managed super fund:

  • Carry out the role of trustee or director, which imposes important legal obligations on you
  • Set and follow an investment strategy that is appropriate for your risk tolerance and is likely to meet your retirement needs
  • Have the financial experience and skills to make sound investment decisions
  • Have enough time to research investments and manage the fund
  • Budget for ongoing expenses such as professional accounting, tax, audit, legal and financial advice
  • Keep comprehensive records and arrange an annual audit by an approved SMSF auditor
  • Organise insurance, including income protection and total and permanent disability cover for super fund members
  • Use the money only to provide retirement benefits

Should I start a self-managed super fund?

It is recommended you conduct thorough research, evaluate your financial position and seek professional advice before committing to starting a self-managed super fund.

Maintaining a self-managed super fund is likely to require a lot of time and specific financial knowledge and skills, so it might be beneficial to speak to professionals before setting up a self-managed super fund.

They might be able to help you consider the pros and cons of running a self-managed super fund, guide you through the administration requirements and assist with investment decisions as well.

The right professionals

As with most financial decisions, working with the right professionals could be beneficial to you and all trustees. Professionals you approach could include:

  • An accountant, for assistance with the fund’s accounts and operating statements
  • A tax agent, for assistance with logging returns and tax advice
  • A fund administrator, for assistance with the running of your fund
  • A legal practitioner, for legal advice and assistance with your fund’s trust deed.
  • A financial adviser, for assistance with preparing and executing investment strategies.

It’s important to note that even if you choose to approach the above professionals for help, you will still be responsible for ensuring all tasks are completed correctly and adhere to legislation surrounding self-managed super funds.

Setting up a self-managed super fund

According to the Australian Taxation Office (ATO), there a several steps that must be taken when setting up a self-managed super fund. Appointing professionals for assistance are among the most crucial. Once this has been done, the following steps should be taken:

  • Choosing individual trustees or a corporate trustee: Self-managed super funds can have up to four individual trustees, or a company acting as a trustee. Costs, requirements and ownership of assets will differ for each of the above options.
  • Creating the trust and trust deed: The trust deed is the legally binding document which details the arrangements relating to the trust and its beneficiaries, and how the fund is operated. It is a legal document, so it must be prepared by someone who is qualified to do so, and must be agreed upon and signed by all trustees.
  • Appointing your trustees: All trustees must submit their consent in writing, and sign a trustee declaration which provides confirmation of understanding of all associated duties and responsibilities. Eligibility criteria applies to anyone hoping to be a trustee.
  • Checking your fund is an Australian super fund: It must be so for the entire financial year to be a complying super fund. If this is not the case, associated assents and income will be taxed at the highest marginal tax rate.
  • Registering your fund: Your self-managed super fund must be registered with the ATO. During the registration process, you can apply for a TFN, ABN and register for GST if you feel necessary.
  • Setting up a bank account for your fund: This is necessary to pay the fund’s expenses and liabilities.

Investments

Though it could be tempting to start making investments right away, preparing an investment strategy for your self-managed super fund could be beneficial to you and all trustees in the long run.

This strategy should be reviewed regularly and amended to suit changes in income, personal circumstances, diversification plans, the liquidity of the fund’s assets and the find’s ability to pay benefits when members reach retirement.

Importantly, the sole purpose test must be met for self-managed super funds to be eligible for the tax concessions generally available to super funds. That is, the fund must be maintained for the sole purpose of being used during the retirement of the member or members, and investments made should reflect this purpose.

The ATO does specify some restrictions to investments, such as:

  • The purchase and sale price of assets must reflect market value
  • The fund cannot borrow money (except in certain limited circumstances)
  • Assets cannot be bought from, and money cannot be loaned to, fund members (except in certain limited circumstances)

How to close a self-managed super fund

Requirements specified in the trust deed will have to be met and benefits must be dealt with before closing a self-managed super fund.

Once this is done, appointing an SMSF auditor is recommended, to complete the final audit for the fund.

Then, the final annual return should be lodged, and outstanding tax and expected liabilities settled before closing the fund’s bank account and winding up the self-managed super fund.

Pros and cons

Setting up a self-managed super fund will give your more control over your investments and how you buy and sell assets, giving you the chance to try to outperform traditional superannuation funds.

That being said, they generally involve high set-up costs and annual running expenses, so a large superannuation balance would be necessary for the fund to be cost-effective. Also, they require a level of financial expertise that a lot of people don’t have.

Alternatives

If you feel a self-managed super fund isn’t the best option for you, consider opting for an industry super fund or one managed by a financial institution or private company.

Frequently asked questions

How do I set up an SMSF?

Setting up an SMSF takes more work than registering with an ordinary superannuation fund. 

An SMSF is a type of trust, so if you want to create an SMSF, you first have to create a trust.

To create a trust, you will need trustees, who must sign a trustee declaration. You will also need identifiable beneficiaries and assets for the fund – although these can be as little as a few dollars.

You will also need to create a trust deed, which is a document that lays out the rules of your SMSF. The trust deed must be prepared by a qualified professional and signed by all trustees.

To qualify as an Australian superannuation fund, the SMSF must meet these three criteria:

  • The fund must be established in Australia – or at least one of its assets must be located in Australia
  • The central management and control of the fund must ordinarily be in Australia
  • The fund must have active members who are Australian residents and who hold at least 50 per cent of the fund’s assets – or it must have no active members

Once your SMSF is established and all trustees have signed a trustee declaration, you have 60 days to apply for an Australian Business Number (ABN).

When completing the ABN application, you should ask for a tax file number for your fund. You should also ask for the fund to be regulated by the Australian Taxation Office – otherwise it won’t receive tax concessions.

Your next step is to open a bank account in your fund’s name. This account must be kept separated from the accounts held by the trustees and any related employers.

Your SMSF will also need an electronic service address, so it can receive contributions.

Finally, you will need to create an investment strategy, which explains how your fund will invest its money, and an exit strategy, which explains how and why it would ever close.

Please note that you can pay an adviser to set up your SMSF. You might also want to take the Self-Managed Superannuation Fund Trustee Education Program, which is a free program that has been created by CPA Australia and Chartered Accountants Australia & New Zealand.

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.

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).

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.

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.

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.

How does superannuation work?

Superannuation is paid by employers to employees, at least once every three months. The ‘superannuation guarantee’ 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 guarantee 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.

Superannuation 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.

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

 

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.

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.

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

 

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 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.

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

What is superannuation?

Superannuation is money set aside for your retirement. This money is automatically paid into your superannuation fund by your employer.

What age can I withdraw my superannuation?

You can withdraw your superannuation (or at least some of it) when you reach ‘preservation age’. The preservation 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

When you reach preservation age, you can withdraw all your superannuation if you’re retired. If you’re still working, you can begin a ‘transition to retirement’, which allows you to withdraw 10 per cent of their superannuation each financial year.

You can also withdraw all your superannuation once you reach 65 years.

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 do you get superannuation?

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

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.

How do you find lost superannuation funds?

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.

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.