Superannuation is important to your financial future as an Australian, but it can often be complex and confusing. To help demystify this topic, we’ve compiled quick answers to the most common questions Australians search and ask about superannuation.
Whether you’re just starting to learn about superannuation or you’re looking to make changes to your existing strategy, this article will give you the information you need to help you make informed decisions about your financial future.
What is superannuation?
Superannuation, often just referred to as “super”, is a long-term savings plan in Australia that helps you save for your retirement. It is a compulsory savings scheme where your employer is required to pay a percentage of your salary into your superannuation account. You can also make voluntary contributions to your super account.
When did super start?
The concept of superannuation started in the 1980s, and it became mandatory for employers to contribute to their employees’ super funds in the 1990s (beginning in 1992, to be specific). It has since become integral to Australia’s retirement support system.
How does superannuation work?
Superannuation involves regular contributions made by your employer and you to create a pool of savings that you can access once you retire. This money is invested by your super fund to make it grow so you have more money when you retire. This ensures you will have funds to support your future lifestyle.
What is a super fund?
A super fund is a managed investment fund where your superannuation contributions are held and invested. These funds are overseen by professionals who make investment decisions to help your money grow over the years. The term ‘super fund’ can also refer to the company or organisation that manages your superannuation.
What is super guarantee?
The super guarantee (SG) is the minimum amount of money that your employer is required to pay into your superannuation account. This amount is increasing over time according to a schedule set by the Australian government. The current super guarantee rate (as of 1 July 2023 up to 30 June 2024) is 11% of your salary.
How does super benefit me?
Superannuation provides a reliable source of retirement income, opens doors to investment opportunities, and grants tax benefits. Super contributions are tax-deductible, and government schemes are in place to help your savings efforts. Some super funds also offer perks such as income protection and various insurance options.
These benefits can help alleviate financial stress and give you a sense of security, knowing that you have a good financial foundation in your retirement years.
How much super should I have for retirement?
The amount of super you need for retirement depends on a number of factors, such as your desired lifestyle, living expenses, and life expectancy. A good rule of thumb is to have around 10 times your annual salary saved by the time you retire. However, this number will vary depending on your individual circumstances.
What is the average superannuation balance at retirement in Australia?
According to 2023 statistics published by the Association of Superannuation Funds of Australia (ASFA), the average superannuation balance for a male at retirement (age 60-64) in 2020 is $357,963. For a female, the average superannuation balance is $287,777. Note that ASFA statistics are updated regularly to reflect changes in the cost of living and superannuation rules.
How do I grow my super?
You can grow your super by making regular contributions as soon as you can. The earlier you start saving, the more time your money has to grow. With the help of compounding effect, even a small amount each month can make a big difference over time.
You can add voluntary contributions, such as salary sacrificing part of your income into your super fund. Also, choosing investment options that align with your risk tolerance and financial goals can help your super grow over time. Additionally, there are a number of government incentives available to help you save for your retirement, such as the government co-contribution scheme.
What is preservation age, and when can I access super?
Your preservation age is the age at which you can access your super funds. It ranges from 55 to 60, depending on when you were born. However, there are specific conditions you need to meet to access your super, such as:
- Permanent disability.
- Buying your first home.
- Studying full-time.
- Being self-employed and having voluntary contributions to your super fund.
When can I start claiming my super funds?
You can start accessing your super funds once you meet the conditions of release. These conditions include reaching your preservation age, retiring from the workforce, or meeting other qualifying criteria.
How does superannuation affect the age pension?
Your superannuation can influence your eligibility for the age pension, as it’s subjected to means- or income testing. The government takes into account (or “deems”) your assets, which include your super, when determining your pension eligibility.
If you possess substantial assets, including your super, your age pension amount might be reduced. How much it is reduced by is based upon your overall assets and income. For example, if you have assets worth $1 million, with $500,000 in superannuation, this could result in you qualifying only for a partial age pension.
It would be best to seek financial advice to understand how your super may affect your age pension entitlements and to strategise accordingly.
What percentage of my gross income is compulsory superannuation?
Compulsory superannuation contributions are calculated as a percentage of an employee’s ordinary time earnings. This is also known as the superannuation guarantee (SG). The current SG rate is 11% and is scheduled to gradually increase to 12% by 2025.
What is contributions tax?
This is a tax applied to certain super contributions. The rate of contributions tax depends on your income, your age, and the type of contribution you make.
Concessional contributions (before-tax contributions), such as employer contributions and salary sacrifice, are taxed at a lower rate. On the other hand, non-concessional contributions (or after-tax contributions) enter your super fund without facing any upfront taxation.
How much is superannuation taxed?
Superannuation is taxed in two ways:
- Contributions: Contributions to super are taxed at a concessional rate of 15%. This means that the government takes 15% of your superannuation contributions before they are invested.
- Investment earnings: Investment earnings within super are taxed at a maximum rate of 15%.
Withdrawals from super are generally tax-free after you reach preservation age and meet certain conditions of release. However, there may be tax implications for accessing super early or exceeding the transfer balance cap.
What are reportable employer superannuation contributions?
These are extra contributions your employer makes to your super fund, on top of the mandatory super guarantee payments. These extra contributions don’t count as assessable income for tax purposes but are reported separately on your yearly tax return.
What is salary sacrifice?
Salary sacrifice is an arrangement where you agree with your employer to contribute a portion of your pre-tax salary into your super fund. This reduces your taxable income and helps grow your super.
Salary sacrificing can be also used to pay for certain expenses, such as your car parking or your health insurance premiums. It is best to discuss with your employer to find out whether you are eligible for this arrangement.
How much can I salary sacrifice into my super?
The Concessional Contributions cap is currently $27,500 per year – which means that the maximum amount of pre-tax earnings you can contribute into your super is $27,500 – this includes contributions such as Superannuation Guarantee, salary sacrifice and tax-deductible personal contributions. This can help you save on taxes and increase your retirement savings.
Please note that if you make more than $27,500 of concessional contributions in a year, you will be taxed on the excess amount. This concessional cap applies to all types of salary sacrifice contributions, including contributions to your own super fund, your spouse’s super fund, and your child’s super fund.
How much super can I contribute to my spouse?
Boosting your spouse’s super can be done by splitting contributions from your own super to theirs or by making direct contributions to their account. Contributions splitting involves moving your contributions to your spouse’s super, while direct contributions are made directly to their super.
Remember, when you split contributions, it’s treated as a rollover to your spouse’s account, not a new contribution. This won’t affect your contribution limits or change the nature of your contributions. Just make sure to inform your fund if you plan to split and claim a tax deduction. Depending on your spouse’s income bracket, you can contribute up to $3,000 per year to your spouse’s super fund to qualify for a tax offset.
How do I pay super to my employees?
If you are an employer, you are required to pay a percentage of your employees’ earnings into their super fund. This percentage is based on the current superannuation guarantee (SG) rate. For example, if the current SG rate is 11%, this means that you will need to pay 11% of your employees’ ordinary time earnings into their super fund.
Paying the SG contribution on time and in full ensures you are free from penalties. You can pay the SG contribution directly to your employees’ super fund or through a payroll service provider.
What are the types of super funds?
There are five main types of super funds in Australia: industry funds, personal funds, corporate funds, self-managed super funds (SMSFs), and public sector funds.
The table below summarises each fund type’s features:
|Type of super fund||Key features|
|Industry funds||Open to members of a particular industry or sector, often seen as being more affordable and efficient than other types of superannuation funds.|
|Personal funds||Open to anyone, typically offer a wider range of investment options than industry funds.|
|Corporate funds||Offered by companies to their employees, similar to industry funds in that they are open to members of a particular group, but not limited to a particular industry or sector.|
|Self-managed super funds (SMSFs)||Managed by the individual members themselves, offer more flexibility than other types of superannuation funds, but also require more work and responsibility.|
|Public sector funds||For employees of the government or government-owned entities, typically have lower fees than other types of superannuation funds.|
How do I choose the right super fund?
The best type of super fund for you will depend on your individual circumstances, goals, and preferences. When choosing a super fund, consider factors like past performance, fees, investment options, insurance coverage, and how well it aligns with your financial goals.
If you are not sure which type of super fund is right for you, it is highly recommended to speak to a professional financial advisor.
How do I join my company’s super fund?
Speak to your employer about your intention to join. Your employer will provide you with the information you need about joining your company’s chosen super fund. Simply follow their instructions and fill out any required forms. Once you have completed the joining form, your employer will typically submit your application on your behalf to the super fund for processing.
How do I change my super fund?
Before switching to a new super fund, first research different funds to find one that aligns with your needs and goals. Compare the fees, investment options, and insurance coverage offered by different funds. Be also mindful of any exit or transfer fees and loss of existing benefits such as ability to invest in certain assets or insurance cover that is attached to your super account which you may not be able to replace or recover once the funds have been transferred out.
Once you’ve made your choice, simply follow your new fund’s process for transferring your existing balance. Typically, you will need to complete a transfer form, which may be available on the new fund’s website. The transfer form will ask for your personal information, such as your name, address, and tax file number. It will also ask for the details of your old super fund.
Once you have completed the transfer form, return it to the new super fund. Your new super fund will then contact your old super fund to arrange the transfer of your superannuation money.
What is income protection in super?
Income protection is a type of insurance that provides a regular income stream if you are unable to work due to illness or injury. Some super funds offer this benefit as an optional extra, which can bring you peace of mind and financial security in case of unexpected events.
What is a default super fund?
A default super fund is a superannuation fund that your employer will contribute to if you do not choose your own super fund. Default super funds are typically low-cost and offer a range of investment options. However, they may not be the best option for everyone.
This is why it is important to review your employer’s default fund’s fees, investment options, and insurance offerings to ensure it aligns with your own retirement goals. Bear in mind that if you are not happy with your default super fund, you can always choose to transfer your balance to another fund.
What is a stapled super fund?
A stapled super fund is designed to remain with you even if you change jobs. It aims to simplify super management by allowing you to keep the same fund as you move between employers. Stapled super funds are often offered by large employers.
There are both advantages and disadvantages to stapled super funds. One advantage is that they can make it easier to manage your super. Another advantage is that they can offer lower fees than other types of super funds. However, one disadvantage is that you may not have as much choice in terms of investment options.
What is a defined benefit fund?
A defined benefit fund promises a guaranteed retirement income that is calculated based on a predetermined benefit rate, years of service, salary history, and other factors. They are often offered by large employers, such as big corporations and government agencies. However, defined benefit funds are expensive to run and can be difficult to manage. They are becoming increasingly rare in Australia, as more super funds turn instead to offering the accumulation type of benefit fund.
What is my superannuation member number?
Your superannuation member number is a unique identifier code assigned to you by your superannuation fund. This number is used to keep track of your super contributions and manage your account. You can usually find your member number on your super statements or by reaching out to your superannuation fund directly.
What is my super account name?
Your super account name is the name of the super fund where your superannuation contributions are held. This could be the name of the super fund itself or the financial institution overseeing it. To locate your super account name, just look at your super statements or get in touch with your superannuation fund.
How do I get a superannuation statement?
You can get this from your super fund. A superannuation statement provides details about your account balance, contributions, investment returns, and fees. Many super funds provide online access to statements, making it convenient for you to monitor your super.
What happens to inactive super accounts?
Inactive super accounts, also known as low-balance or lost super accounts, are those that have not received contributions or rollovers for a certain period. These accounts may be transferred to the ATO, which will attempt to reunite the funds with the account holder or transfer them to the account holder’s active super fund. It is important to keep your super accounts organised and consolidate them to avoid losing track of your retirement savings.
How do I find lost super?
If you have forgotten or lost track of your super accounts, you can use the Australian Taxation Office (ATO) online services through your MyGov account to search for and consolidate your lost super.
You could also try the following:
- Check your old pay slips and employment records.
- Reach out to your previous employers.
- Review your bank statements.
- Call or submit a paper form to the ATO
It is important to keep your super accounts organised to avoid losing track of your retirement savings and paying unnecessary fees because of forgotten super.
How can I consolidate or merge my super accounts?
Consolidating your super accounts involves transferring multiple accounts into a single fund. This can save on fees and make managing your super simpler. You can consolidate your super by contacting your preferred super fund or using the online services provided by the ATO through MyGov.
Typically you will be provided with a transfer form that you will need to complete and return. Please note that the transfer process can take a few weeks to complete. Once the transfer is complete, your old super accounts will be closed and your money will be transferred to your new super fund.
What is transition to retirement (TTR)?
Transition to retirement (TTR) is a strategy that allows you to access your superannuation while you are still working. This can be particularly useful if you want to reduce your working hours gradually or supplement your income.
The work test requirements vary depending on your age. If you are aged 55-59, you must work at least 10 hours per week or 300 hours per year. If you are aged 60 or over, you do not need to meet the work test requirements.
Once you have met the eligibility requirements, you can start a TTR income stream. This is a type of income stream that provides you with a regular income. You can choose to have your income paid monthly, quarterly, or annually.
What do I do with my super when I retire?
Below are the most common ways to handle your super once you retire. The best one for you will depend on your individual circumstances and goals. If you are unsure which option is right for you, it would be a good idea to speak to a professional financial advisor.
|Withdraw as a lump sum||You will receive a lump sum of money that you can use however you want. You will have to pay tax on the lump sum, and you may also have to pay early withdrawal penalties.|
|Withdraw as an income stream||This option provides you with a regular income. You can choose to have your income paid monthly, quarterly, or annually. You will not have to pay tax on the income until you receive it, and you will also avoid early withdrawal penalties.|
|Make partial withdrawals||Make regular withdrawals from your super account. This can be useful if you have specific financial goals or expenses you want to address.|
|Leave it in your super fund||Keep your super funds in your account and continue to let it grow.|
What happens to my super when I die?
Your super becomes part of your estate but not a part of your will when you pass away. This means that it will be not distributed according to your will or other arrangements you’ve made. It can be paid to your nominated beneficiaries or your estate only when you have nominated this via your superannuation fund.
How do I add a beneficiary to my super account?
To add a beneficiary to your Australian super account, you need to complete a binding death benefit nomination (BDBN) form provided by your super fund. This form specifies who will receive your superannuation benefits in case of your death. You can nominate anyone as your beneficiary, including your spouse, children, parents, siblings, friends, or even a charity.
In this article, we have provided a comprehensive overview of superannuation, basic concepts, how it works, contributions and tax implications, and optimisation tips.
It is important to remember that superannuation is a complex topic, and this article only scratches the surface. We also recommend our article, “How Does Superannuation Work?” for further reading.
If you want to learn more about superannuation, or if you need help making decisions about your super, here are other resources available to you:
- Australian Taxation Office (ATO): The ATO website provides comprehensive information on superannuation rules, contributions, and tax implications.
- MoneySmart: This is a website run by the Australian Securities and Investments Commission (ASIC) that offers practical guidance on managing your super, understanding fees, and making informed investment choices.
- MyGov: Use MyGov to track and manage your super accounts.
- The ASFA Retirement Standard: This is a quarterly updated guide to how much superannuation you need to save for a comfortable retirement. It is based on a number of factors, including your age, income, and lifestyle expectations.
- Your super fund’s website: Most super funds have a website that you can use to track and manage your super accounts. They may also offer calculators, fact sheets, and guides.
Last but not least, consulting with an expert financial advisor can help you make the best decisions for your individual circumstances. They can help you develop a personalised superannuation strategy based on your individual needs and goals. Remember, each person’s situation is unique – what works for others may not work for you.
The road to a comfortable retirement may seem intimidating, but with a strong understanding of superannuation, you are equipped to make decisions that will shape your financial future. By staying informed about changes in regulations and consulting with professionals, you can create an effective superannuation strategy that will meet your needs and fulfil your retirement dreams.
DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.