Super is likely to be one of the biggest assets most of us will ever own, with expectations it could become the average Aussie’s greatest asset, overtaking the family home, in the coming decades1.
With that in mind, it’s worth understanding how superannuation works, because it is your money and your interest in it could make a big difference to the lifestyle you lead once you finish working.
What you need to know about superannuation
1. How much should my employer be paying me?
Generally speaking, if you earn over $450 a month, no less than 9.5% of your before-tax salary should be going into your super under the Superannuation Guarantee scheme, so check your payslip and if something doesn’t look right, speak to your boss, or contact the ATO.
2. Do my super investment options matter?
Your super fund will typically let you choose from a range of investment options. Generally, the main difference between options will be the level of risk you’re willing to take to potentially generate a profit.
If you haven’t selected your investment preferences, you’re more than likely invested in your fund’s default option, which will typically take a balanced approach to risk and return.
The most suitable option for you will generally come down to your goals, attitude to risk and the time you have available to invest. Use our tool to determine what investor style you are and if you’re an AMP customer, you can log into My AMP to see how your super is invested.
3. Can I make additional payments to my super?
In addition to compulsory contributions, which your employer might make (depending on if you’re eligible), you may choose to make voluntary contributions.
You might choose to do this via a salary sacrifice arrangement (which is where you elect to have a portion of your before-tax income paid into your super by your employer), or by making after-tax contributions, which you may be able to claim a personal tax deduction on in your tax return.
Tips worth noting:
- Personal super contributions made since 1 July 2017 can be claimed as a tax deduction by most Australian workers.
- If you’re a low to middle-income earner and have made an after-tax contribution to your super fund, which you haven’t claimed a tax deduction on, you might be eligible for a co-contribution of up to $500 from the government.
- If your partner is a stay-at-home parent, working part-time or out of work, contributing to their super, or splitting your super contributions with them, might benefit you both financially.
- If you’re 65 or over, you can keep building your super with compulsory employer contributions, but you must be under 75 and satisfy a work test to make voluntary contributions. From 1 July 2018, you might also be able to contribute the proceeds from the sale of your main residence up to $300,000 into super, regardless of other restrictions.
4. Are there limits to what I can put into my super?
Here is a high-level summary of how much you can put into super each year.
Remember, what your employer pays into your fund (under the Superannuation Guarantee or what you might elect them to pay via a salary sacrifice arrangement), as well as personal contributions which you claim a tax deduction on, will count toward your concessional super contributions cap.
Personal contributions that you’re not claiming a tax deduction on will count toward your non-concessional contributions cap.
|Contribution type||Your age||Contributions cap|
|Concessional contributions||All||$25,000 per annum|
|Non-concessional contributions||Under 65||$100,000 per annum and up to three years of annual caps ($300,000) under bring-forward rules|
|Non-concessional contributions||65 or over||$100,000 per annum|
Remember, if you’re 65 or over at the time of making a contribution, a work test must still be satisfied.
Tips worth noting
- If you happen to have super assets over $1.6 million as at 30 June of the previous financial year, you can’t make additional after-tax contributions to your super, or penalties may apply.
- From 1 July 2018, Australians aged 65 and over, can make an after-tax contribution to their super of up to $300,000 using the proceeds from the sale of their main residence, regardless of their work status, super balance, or contribution history.
5. How do I find my lost super?
People often lose track of super when they change jobs, as they might opt for their employer to put contributions into a new fund and forget to carry over what they accumulated in a previous one.
When you couple that with the possibility you might not have updated your contact details with your providers, your previous super fund or funds may lose track of you.
If you’re an AMP customer, we can do the legwork for you and help find your super free of charge. Alternatively, you could log in or create a myGov account, or contact your previous employers to find out which super funds they may have paid contributions to on your behalf.
6. How can I consolidate multiple accounts into one?
If you do find you have super with multiple providers, there may be advantages to rolling your accounts into one, such as paying one set of fees which could save you hundreds of dollars each year and even thousands over many years.
There will be important things to consider though, such as:
- Will you be charged exit or withdrawal fees?
- Might you lose features and benefits, such as insurance, that may be attached to the account you’re closing?
7. What if I change jobs but don’t want to change funds?
If you are changing jobs and wish to remain with your existing super fund rather than have your employer set up a new one for you (which is when accounts can start to multiply), ask your employer for the necessary forms to fill out, and have your existing super fund account details handy.
8. Do I need to nominate beneficiaries?
You may not be aware that how, and in what proportions, your super is distributed can’t be covered in your will unless you’ve made the necessary arrangements with your super fund beforehand.
For this reason, if you want your super to end up in the right hands following your death, it’s important to have nominated your beneficiaries and to understand that the type of nomination you choose could give you greater control over exactly how your super benefits are distributed.
9. Should I have insurance inside super?
Super funds generally offer three types of insurance cover - life insurance, total and permanent disability and income protection - and there are a range of pros and cons worth looking into when it comes to holding insurance inside super.
For instance, cover may be cheaper because super funds purchase insurance policies in bulk. And, as premiums are deducted from your super account, you’re not dipping into your take-home pay.
On the other hand, the types of insurance and level of cover may be limited and paying premiums via your super could decrease your balance if your super is not being offset by contributions.
10. What age can I access my super?
Usually, you can access your super:
- when you've reached your preservation age (which will be between 55 and 60 depending on when you were born) and retire
- when you cease an employment arrangement after turning 60
- when you reach age 65 (even if you haven't retired)
- through a transition to retirement (TTR) income stream.
Meanwhile, you can also access super early under certain circumstances, including incapacity, severe financial hardship, compassionate grounds or if you’ve been diagnosed with a terminal condition.
11. How can I take my super money once I retire?
You’ll have a number of options regarding what you can do with your super, including:
- Take it as a lump sum - A lump sum could help you to pay off various debts, but there may be tax implications to consider and you should think about what you’ll live on if you have no super left, as the government’s Age Pension mightn’t cover the lifestyle you had in mind.
- Move it into an account-based (or allocated) pension - If you’d like to receive a regular income in retirement, an account-based pension could be a tax-effective option. You will also have the flexibility to choose your investment options and you won’t be limited in what you can take out, but each year, you will need to withdraw a minimum amount.
- Purchase an annuity with your super - An annuity provides a series of regular payments over a set number of years, or for the remainder of your life, depending on whether you opt for a fixed-term or lifetime annuity. You will however be sacrificing some flexibility as you cannot easily make lump sum withdrawals and life expectancy is also a major consideration.
- Any combination of the above options.
It’s also worth noting that the most you’ll be able to transfer into a tax-free retirement income stream is $1.6 million.
12. Does super affect Age Pension eligibility?
Currently, to be eligible for a full or part Age Pension from the government, you must be 65 and 6 months or older and satisfy an income test and an assets test, as well as other requirements.
What this means is the value of various assets you have (including your super), and any income you receive, will determine whether you’re eligible and what amount you’ll receive in government Age Pension payments.
13. At what age can I no longer contribute to super?
Once you turn 75, you can no longer make voluntary contributions to your super, with some exceptions if you’re making downsizing contributions after 1 July 2018. Compulsory employer contributions however, could still be made on your behalf if you’re still working.
If you’re an AMP customer, you can manage your super online via My AMP.
Also, if you are contributing to super, keep in mind that if you exceed the super contribution caps, additional tax and penalties may apply, so you might like to set up notifications via the My AMP mobile or tablet app to let you know when you’re nearing your super contribution limits.
For more information, speak to your financial adviser and if you don’t have one but would like some advice, call us on 131 267 or use our find an adviser search engine.
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