Superannuation, or ‘Super’, refers to the arrangements which people make in Australia to have funds available for them in retirement. Superannuation in Australia is government- supported and encouraged, and minimum provisions are compulsory for employees. Super plays huge roles in ensuring Australians are able to enjoy their retirement without relying on social welfare. It is also taxed at a lower rate than other investments or salary, so the system is designed to encourage you to save for your own retirement since you’ll get a better after-tax return. Most super funds offer additional benefits, such as life insurance cover, and total and permanent disability insurance. In this case, it is “super” because it comes to your rescue in your later years.
How do I pay my Super?
Money can find its way into your fund in four ways:
From your employer, from you, by government co-contribution, and Rollover from other super funds.
Generally, if you are aged 18 or older and earn AUD$ 450 or more in a month, your employer must pay superannuation into a superannuation account for you. However, if you earn less than the AUD$ 450 a month, or if you work for less than 30 hours a week, and your work is of a domestic or private nature, your employer is not required to pay superannuation for you.
The Australian government guarantees a minimum of 9.5% of your salary as super contributions from your employer (it was 9.25% until July 1, 2014, and 9% up to a year before that). This requirement is set out in the superannuation legislation that employers must adhere to and is known as the superannuation guarantee and covers full-time, part-time, and casual employees. This money comes from your employer directly, and not from your pay packet (although total remuneration can be quoted inclusive of the superannuation amounts, so you should check).
However, you are able to put extra money into your superannuation yourself (by way of salary sacrificing and co- contributions described later in this chapter), although there are contribution caps regulating the maximum amount you can put in without being hit with a penalty tax. Your money then gets invested by the fund on your behalf and is yours to use when you retire (or meet another condition that allows you to access your money).
When can I get my superannuation?
As your superannuation is meant to be for your retirement, you generally cannot get access to your fund until you reach preservation age and retire, or reach age 65. There are some exceptions regarding personal circumstances – if you have a terminal illness or injury, you may be entitled to access your super as a tax-free lump sum payment. However, this will need to be organised through your super fund as it is their decision, and has to meet the conditions in the superannuation law as well.
What about temporary residents – do they pay super, and can they take it with them when they leave?
Yes, they do have super contributions paid on their behalf, and yes, they can take it with them. If you are a temporary resident and would like to find out more about claiming your super back, visit DASP (Departing Australia Superannuation Payment)
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What is Low-income boost?
A super tax “refund”, called the Low Income Super Contribution (LISC), is a government superannuation payment of up to AUD$ 500 each financial year to help low-income earners save for their retirement. If you earn AUD$ 37,000 or less per year, you may be eligible to receive an LISC payment directly into your super fund account. Visit LISC for more information.
What are the benefits of saving through super?
Certain advantages make saving through superannuation more tax-effective than other investments, which means your savings could grow faster. For example, any contributions your employer makes, as well as any returns you earn on your super, are taxed at a maximum of 15%, rather than at your marginal tax rate. If you make super contributions on your own, you could also be eligible for special tax concessions. Having your super locked away until you reach retirement ensures your savings will be used for one purpose only – to help you achieve your financial goals and secure the retirement you’re looking forward to.
What is Salary Sacrifice for Superannuation?
Salary sacrifice can be a great way to get a part of your remuneration in a form other than cash – and not personally pay tax on it. This is where you agree to take part of your wage as a benefit of some kind, equal in value to the salary it is exchanged for. The upside in you doing this is that your income tax is then based only on the reduced amount of salary that results. If your employer agrees to go into a salary sacrificing arrangement with you, the benefit you get should, of course, be equal in value to the portion of salary that you give up. Options include a car, shares or payments for your expenses, such as school fees, child care or home phone costs for example. On top of these, one of the most popular ones is superannuation. Your employer already has to pay 9.5% of your salary into your super fund, but many people choose to top it up with salary sacrificed amounts to further prepare for their retirement.
Other Things you should know about Super
Most people are entitled to compulsory super contributions from their employer. These Superannuation Guarantee Contributions must be at least 9.25% of your ordinary earnings, up to the ‘maximum contribution base’. You are entitled to choose the fund your super is paid into. If you leave Australia because your visa requires you to leave, then you may apply to reclaim some of the super contributions made on your behalf. You can do this online within a certain period of leaving. This is known as DASP – Departing Australia Superannuation Payment. Check the ATO site for details.
The performance of your super really depends on the types of things (asset classes) you are invested in. Growth assets like shares and property are more likely to produce shorter-term fluctuations in their price. History has shown that shares have
performed in this group over the past 100 years, but to get these returns, you must invest for at least 10 years to weather the volatility they can create. This requires discipline, calmness, and the ability to stay focused on the long-term result above the noise of today.
At the other end of the spectrum, putting your money in cash is more stable, but when interest rates are low – as they are now – you risk losing your earnings to inflation. Generally, you need to aim to produce an overall return from your super after tax and fees that are 2-4 % better than inflation to enjoy a decent retirement. Adding in more than the regulated 9.5 % of wages is also required.
This information has been reproduced with permission of ASIC. Source: ASIC’s MoneySmart ,08.10.2015
MIGRANT NINJA TIP – Your salary may contain other additions but the fundamentals are a base amount plus the statutory superannuation payment. Salaries can be advertised excluding or including the statutory superannuation, so, always make sure you know which way round it is as it makes a big difference to your take home pay. These are the basics anyone from overseas should understand.