What is superannuation?

Superannuation is designed to ensure that we save enough money throughout the course of our working lives to have sufficient funds available to us in retirement.

If you’re employed you’ll probably qualify for super guarantee (SG) contributions from your employer, which requires them to contribute 9.5% of your salary into your super account on your behalf.

This amount will often be subtracted from your salary before you get your pay packet, although some employers will pay your super on top of your salary.

Super funds will invest your money, together with that of other members, in a mix of assets with the aim of protecting and growing it over time.

 

Tax efficient

Super is essentially a type of trust that qualifies for concessional tax treatment, which means you only pay a maximum of 15% tax on fund earnings.

Importantly, this concession is there to encourage you to save for your retirement. For most people, these tax advantages make saving through super more tax effective than saving outside it so your savings can accumulate faster.

In return for the tax advantages, the government restricts when and how you can access your super.

Generally you need to wait until you retire or have reached what is known as your ‘preservation age’, which depends on your date of birth.

There are other conditions of release that enable you to access your super as a lump sum before your preservation age. These include permanent incapacity, severe financial hardship and a terminal medical condition.

 

What types of super funds are there?

There are four main types of super funds to choose from:

Corporate funds: These are funds that an employer sets up with a financial institution on behalf of their employees and often have group discounts and special benefits for members.

Personal super funds: These are retail funds that are available to individual customers.

Industry super funds: These funds are open to everyone, but if you work in a particular industry or under a particular industrial award your employer may contribute your super guarantee and other super monies to an industry fund.

Self-managed super funds (SMSFs): These are often referred to as ‘do it yourself’ (DIY) super funds. Trustees/members of a DIY Super fund are responsible for the investment strategy, operation, administration and compliance of the fund.

 

Super contributions

There are several different types of super contributions, which can be divided into two main categories:

  • Concessional (pre-tax) contributions - such as compulsory employer or super guarantee contributions and salary sacrifice contributions under which you agree to give up some of your pre-tax salary in exchange for additional employer contributions into super. These contributions are subject to a 15% contributions tax upon entry to a fund.
  • Non-concessional (after-tax) contributions which are personal contributions such as spouse contributions, from your after-tax salary.

You can make personal contributions to your own super fund, as well as spouse contributions, from your after-tax salary, but these do not attract the lower tax rate of 15%.

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© Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945. CommSec is a Market Participant of ASX Limited and Cboe Australia Pty Limited, a Clearing Participant of ASX Clear Pty Limited and a Settlement Participant of ASX Settlement Pty Limited.

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