The Superannuation system is a long term savings arrangement by the Australian Government to save for your retirement, and help ensure Australians have enough income in retirement.
Super money is predominantly paid in by employers, the self-employed for themselves, and your own top-up as employees and for family members (on behalf of others) by making contributions to a super fund. The Government will sometimes also add to your super with co-contributions and the low income super contribution.
Currently the employer (concessional) contribution is 9.5% from 1 July 2014, called the Super Guarantee, and is increasing to a proposed 12% by 2019. Over time these contributions add up or “accumulate” which is known as accumulation phase, and the money is invested so it grows over this time, as a life-time investment.
Contributions can be made to either of 3 types of fund accounts (you have choice of fund):
- Independent Large Super Funds – retail, industry, bank and financial institutions (APRA – Australian Prudential Regulatory Authority is the regulator)
- Retirement Savings Accounts (RSA) banks, institutions (rare)
- Self-Managed Super Fund (SMSF) you manage it (ATO – Australian Tax Office is the regulator), also known as SMSF or DIY funds. See our education slides SMSF & Shares Overview as well as Superannuation and SMSF for Business Owners.
Super is a low tax saving environment – currently 15% on contributions in from employers etc, and 15% in income earned on the invested super money – eg dividends, interest etc.
The 9.5% employer contributions are based on your ‘ordinary time earnings’. For example, if your ordinary time earnings are $50,000 then you should be paid an additional $4,750 into super.
Ordinary time earnings are what employees earn for their ordinary hours of work including over-award payments, bonuses, commissions, allowances and certain paid leave. See the ATO’s information on using ordinary time earnings to calculate the super guarantee.
You can make extra contributions by:
- Putting some of your savings into your super account
- Asking your employer to deduct extra money from your pay (before tax is taken out) and pay this into your super account – this is called contributing extra to super.
- Transferring super from another fund into your main super account on a regular basis
For self-employed people, your super contributions may be tax deductible. To calculate what amount of super you should be receiving form employment, the ASIC (Australian Securities and Investments Commission) MoneySmart website has a calculator.
Most people can choose which super fund they’d like their super contributions paid into. If you want to choose your super fund, tell your employer by filling in a Standard choice form from the Australian Taxation Office (ATO) or from your employer.
In some cases your employer will decide which fund your super is paid into. If you don’t (or can’t) choose your super fund, your employer will put the money into a ‘default’ super fund, a fund nominated under an industrial award or by your employer.
See choosing a super fund at MoneySmart for more information.
Money in your super fund account is invested by your super fund. Most super funds offer a variety of investment options.
For example, if you choose a market-linked investment, the value of your super will move up and down with market movements. Or you might select a stable option with lower expected returns but fewer ups and downs.
You can choose how you’d like your money invested, if you want to. You can also transfer your money to a different investment option within the fund, or transfer to another super fund at any time.
See super investment options for more information.
When you retire and have reached your preservation age (i.e. 55 to 60), you can withdraw your super. There are three ways you can get your super:
- As a lump sum
- As a retirement income stream (e.g. a monthly payment)
- A combination of both
If you choose to take your super as a retirement income stream, the money that you’re not accessing continues to work for you and earn interest. See income from super for more information.
Interested to know what self-managed super (SMSF) is all about, and if it is for you? See the slides SMSF Roadmap Overview.
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