How much do you know about superannuation?

All / 15.04.2021

How much do you know about superannuation?

If you’re an Australian resident over 18 and earning more than $450 in a calendar month, you are probably contributing to superannuation.

In a nutshell, super is a strictly regulated, tax effective way of putting money aside for your retirement. The government sets a minimum compulsory contribution amount, which your employer calculates based on your income and pays into your nominated super fund. You are encouraged to contribute money to your super in addition to your employer’s payments.

Government policy, our changing lifestyles and extended life expectancies see the structure of superannuation and its supervisory guidelines being routinely revised. The result is a very confusing super system.

You probably have a basic understanding of how super works: you put money in and leave it there until you retire, right? But you also know it is more complex than that.

It’s your money after all, so take our quiz and find out exactly how much you know about building your retirement fund.

Q1: What is the current Superannuation Guarantee employers must pay?

a) 12%
b) 9.5%
c) 5%

Q2: Can you make personal contributions to super?

a) Yes, but under certain circumstances
b) Yes, but only at tax time
c) No, only compulsory employer contributions can be made

Q3: What are concessional contributions to super?

a) Contributions made by people holding Centrelink Concession cards
b) Contributions that attract government concessions such as reduced fees
c) Contributions that are taxable

Q4: What is the annual limit for concessional contributions to super and what happens if you exceed it?

a) $250,000 for those retiring in the next financial year. Amounts exceeding the cap are forfeit.
b) $25,000 regardless of age. Penalties may apply to amounts exceeding the cap.
c) There is no cap. The purpose of super is to save.

Q5: How does the government’s co-contribution scheme work?

a) The government may contribute a one-off sum up to $500 to your super fund
b) You can contribute to your partner’s super if they contribute to yours
c) You can contribute to a cooperative (pooled) super fund to assist low income earners

Q6: Do you have control over how your super is managed?

a) Yes
b) No

Q7: At what age can you normally access your super?

a) Upon retirement regardless of age
b) Upon retirement at age 65
c) Upon retirement and depending on age

Q8: Is your super included in your estate when you die?

a) Yes
b) No

ANSWERS & CALL TO ACTION

Q1: What is the current Superannuation Guarantee employers must pay?

9.5%

The compulsory minimum superannuation contribution is often referred to as a SG contribution or Super Guarantee contribution. It is currently set at 9.5% of an employee’s ordinary time earnings (OTE). This includes what you earn for ordinary hours of work, over-award payments, commissions, allowances, bonuses and paid leave.

Q2: Can you make personal contributions to super?

Yes, but under certain circumstances

You can top up your super fund in a couple of ways: salary sacrificing and making personal contributions.
Salary sacrificing involves contributing pre-tax money directly into your super fund. You need to arrange this through your employer because it means foregoing part of your wages or salary and investing the money in superannuation.

Personal contributions are post-tax, one-off lump sums you make to your super fund. They are called post-tax contributions because they come from money in your take-home pay or money you have saved outside of super.

Voluntary contributions to super cannot be used in place of your employer’s Super Guarantee contribution.

Q3: What are concessional contributions to super?

Contributions that are taxable

These are contributions on which you or your employer has claimed a tax deduction. They are taxed at 15% within your super fund. If you earn more than $250,000 per annum you will be taxed an additional 15% on the concessional contributions above this threshold. Concessional contributions include:

  • Compulsory employer (Superannuation Guarantee) contributions.
  • Salary sacrificed contributions made from your pre-tax income.
  • Personal contributions on which you claim a tax deduction.

Q4: What is the annual limit for concessional contributions to super and what happens if you exceed it?

$25,000 regardless of age. Penalties may apply to amounts exceeding the cap

In the 2017/18 financial year, any person, regardless of age, may contribute up to $25,000 pre-tax funds into superannuation. Total contributions exceeding the cap may attract additional tax.

From 1 July 2018, if you don’t contribute up to the maximum concessional amount ($25,000) the unused portion may be carried forward to increase your concessional cap in the following financial year. Your overall superannuation investment balance must be less than $500,000, and unused concessional contributions must be used within five years.

Q5: How does the government’s co-contribution scheme work?

The government may contribute a one-off sum up to $500 to your super fund

If you earn less than $51,813 this financial year and you make personal (after-tax) contributions to your super fund, based on your eligibility the federal government may make a contribution of up to $500 to your fund on your behalf.

The ATO will determine if you are eligible for a co-contribution and the amount after you lodge your annual tax return.

Q6: Do you have control over how your super is managed?

Yes

You can take a certain amount of control of your super by selecting the fund as well as how your money is invested. Depending on your employer you can choose from retail, corporate or industry funds. Compare fees, investment options and additional benefits such as insurance to decide which fund is right for you.

Alternatively, if you prefer to have total control, you might consider a Self-Managed Super Fund (SMSF). This is a private super fund run by its members. You can manage a SMSF yourself for up to four members although many people find the amount of administration, reporting and regulatory work prohibitive and costly.

An SMSF allows you to have complete control, however strict regulations govern the funds and members’ actions. As a member, you are personally liable for non-compliance and hefty fines will apply if your fund is deemed non-compliant by the ATO.

Q7: At what age can you normally access your super?

Upon retirement and depending on age

Your superannuation is preserved until you reach retirement and you meet certain age criteria:

  • If born before 1 July 1960 you can access super at age 55.
  • Between 1960 and 1961: age 56
  • Between 1961 and 1962: age 57
  • 1962 and 1963: age 58
  • 1963 and 1964: age 59
  •  From 1 July 1964, access super at age 60

Q8: Is super included in your estate when you die?

No

Superannuation is governed by tax law therefore it does not form part of your estate when you die. For this reason, it’s very important that you contact your superannuation fund to nominate a beneficiary.

In the event of your death, the super fund must pay your superannuation to the individual(s) you nominate.

If you don’t nominate a beneficiary, the trustee of the fund will decide which of your dependants are to receive your superannuation, or pay it to your executor for distribution according to your will.

So, how did you go?

There’s no doubt that Australia’s superannuation system is complex, yet its legislative structure makes it one of the most secure and highly regulated of its type in the world.

After completing this quiz, you may find you know more about super than you originally thought, or perhaps you found out a few things you didn’t know.

Either way, superannuation is not a set-and-forget investment; it needs regular management and review as your circumstances change.

Through the different stages of your life, superannuation is going to be there. Even when you’re young, perhaps buying your first home and having a family, the right super fund for you is chugging away in the background.

Later in life when the kids have left home and retirement is approaching, depending on how you have managed it, your strategy should have created a solid foundation on which to grow your savings and bring your retirement plan to fruition.

It’s never too early – or late – to dream of a worry-free, financially secure retirement. Speak to your financial adviser today to ensure your super strategy will bring those dreams alive.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.