INVESTING

16 things you should know about superannuation

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1. If you're paid more than $450 a month your employer should pay super ... unless you're under 18

If you're 18 or over and are paid $450 or more (before tax) in a month, your employer should contribute at least 9.5% of your ordinary earnings (ie, your rate before any overtime) into super for you. This is known as the super guarantee (SG).

It doesn't matter whether you're full time, part time or casual as long as you meet the income and age requirements mentioned.

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If you are under 18, though, you have to work at least 30 hours in a week to get the 9.5% super contribution.

2. Don't neglect your super if you're self-employed

If you're self-employed you don't have to contribute to your super payments but you might regret not adding to your retirement fund.

You can get a tax deduction and pay just 15% tax on any contributions you make up to the limit.

3. You can - and should - check if your employer is making the right payments

Look at your latest statement or contact your fund to check whether super payments have been made.

You can also use the "employee superannuation guarantee (SG) calculator tool" on the Australian Tax Office website (ato.gov.au) to help you work out whether you are eligible for SG contributions and whether your employer is paying the correct amount.

If the tool shows that your super has not been correctly paid to your fund by your employer, you can print a summary of the super calculation and take it to your employer and discuss it. If you can't resolve the issue with your employer, you can use the tool to prepare a super inquiry, which you can lodge electronically with the ATO.

4. There are tax benefits for adding money to super

Salary sacrificing is a tax-effective way to add money to your super fund.

It involves arranging with your employer to direct part of your pre-tax salary directly into super. These contributions will be taxed when they go into the fund at the usual 15% rate for super, which will probably be lower than your marginal tax rate. There are limits to how much you can add. (See point 6).

You might also be able to claim a tax deduction for any after-tax contributions you make into super. The condition that less than 10% of your income comes from salary and wages to be able to claim a deduction was scrapped on July 1, 2017. If you're aged between 65 and 74, though, you will need to meet the work test to be eligible.

The contributions that you claim as a deduction will count towards your concessional contributions cap of $25,000 - not the much higher non-concessional cap. (See point 6.)

5. If you're a lower income earner there may be more perks

The government has low income superannuation tax offset (LISTO) of up to $500 for those earning up to $37,000. The LISTO is calculated on 15% of the concessional (before-tax) super contributions you or your employer pay into your super fund.

You don't need to apply - the tax office will work out your eligibility based on your tax return or information provided by your super fund.

You may also be able to get the government to top up your super. If you make an after-tax contribution to your super fund, the government will add 50c for each $1 you contribute up to a maximum of $500. To get the maximum co-contribution of $500 you need to earn less than $36,813 and make an after-tax contribution of $1000. The co-contribution rate reduces until it cuts out completely when your income reaches $51,813.

6. There are limits to how much you can put into super

There are two types of contributions - concessional and non-concessional - and each has its limits.

Concessional contributions are pre-tax payments into super and are taxed at 15% going into the fund. You can make up to $25,000 a year in concessional contributions. It's worth noting that these limits include the 9.5% compulsory contributions made by your employer, so make sure you take that into account when calculating how much you can salary sacrifice so that you don't go over your cap.

Non-concessional contributions are those made with money on which you have already paid tax and are not taxed on the way into the fund. The maximum is $100,000 a year, or $300,000 over a three-year period if your super balance is less than $1.6 million at 30 June of the previous financial year. If you contribute more than the cap you can end up paying a penalty rate of tax, which could be as high as 46.5% on the excess amount.

7. Your spouse can contribute to your super

If you earn less than $37,000 your spouse can make a contribution of up to $3000 to your super account and receive an 18% tax offset of up to $540.

The tax offset amount will gradually reduce for income above this amount and completely phases out when your spouse's income reaches $40,000.

The ATO defines a spouse as a person who is married to you. The definition also includes someone who lives with you on a genuine domestic basis as your husband or wife although they're not legally married to you. It does not include a person you're married to but who lives separately from you or apart from you on a permanent basis.

Your spouse may also be able to "split" their contributions with you but it can only be done after the end of the financial year and not all funds permit super splitting.

8.You may be able to choose what fund your contributions go into

Most people can choose which superannuation fund their employer's contributions are paid into. If you're eligible to choose a fund, your employer must give you a "standard choice form" so you can make that choice in writing.

If you don't nominate a super fund, your employer will choose a fund for you and it will be a MySuper product. There are, however, some instances where you're not eligible to choose the fund you want your super guarantee contributions paid into.

This might be if your super is paid under a state award or industrial agreement, you're a federal or state public sector employee, you're excluded from super choice by law or regulations or you're in a particular type of defined benefit fund or have already reached a certain level of benefit in that super fund, explains the tax office. Your employer or union should be able to tell you if you can choose.

9. You can take control of your own super

One way to do this is simply to make sure your money is not just going into the default investment option, which is usually a "balanced" option. Have a say in where your money is being invested by actually choosing an investment option that suits your needs and where you are in life.

You may want more in growth or you may be more conservative. Some superannuation funds also have member-direct options, which mean you can choose the individual shares to invest in rather than letting the fund manager do it for you. But this is not for everyone.

Finally, you might also consider setting up a self-managed super fund. A self-managed super fund (SMSF) is a fund set up by a few people - often a married couple or a family - to hold their contributions. It can have a maximum of four members and is regulated by the tax office.

While an SMSF gives you more control, you need to comply with a lot of rules and have the time and commitment to run it properly. To save on fees you have to do a lot of the administration yourself and have a reasonable amount in the fund, with a minimum suggested balance of about $200,000.

10. Your fund might provide a few extras

The main extra is usually low-cost insurance. Many funds offer life, disability and income protection insurance at competitive premiums because they buy in bulk and get a tax deduction for life and disability premiums.

But an even greater benefit for cash-strapped families is that the premiums can come out of the super guarantee levy paid by your employer and therefore put no strain on the hip pocket. You may also be able to get some low-cost financial advice.

Some funds also offer access to competitive home loans, credit cards, health insurance and bank accounts. A small number of funds may also offer discounts on holidays, shopping, entertainment and gym membership. It's worth checking with your fund to find out what it offers.

11. You can move your super if you change jobs

Many people forget about their superannuation when they change jobs, so try to avoid this mistake.

You can keep two separate funds but it is often a good idea to consolidate your super into just one fund to minimise fees. You can ask your new employer to pay contributions into your existing fund or you can transfer your super into a new fund.

Before you change super funds, though, make sure that in your new fund you can get the same death, TPD (total and permanent disability) or income protection cover that you currently have, suggests MoneySmart, adding that you should be particularly careful if you have a pre-existing medical condition or are aged 60 or over.

12. You can't take your super with you if you move overseas

If you're a citizen or permanent resident and moving overseas you can't take your super with you even if you are leaving Australia permanently. You will have to wait until you reach preservation age or meet any other condition of release to get your hands on your super.

If you are working for an Australian employer overseas, they may still have to make the 9.5% super guarantee payments. You will probably still be able to make contributions to your fund even if you're living overseas but it's best to check with your fund.

13. There are rules about when you can access your super

The two things you need to know are your "preservation age" and relevant "conditions of release".

For those born before July 1, 1960 the preservation age is 55 and it rises gradually until it reaches 60 for those born after June 1964. For those under 60 the main condition of release is that you need to have retired permanently from the workforce.

If you are between 60 and 65 you must have left your current employer. If you are over 65 you can withdraw your super even if you stay in your current job.

14. In extreme circumstances you may be able to access your super early

You may be able to get early access to some of your superannuation on compassionate grounds.

This might be if you need to pay for medical or dental treatment for yourself or a dependant or pay for transport to any treatment, prevent your home from being sold by the lender that holds the mortgage, modify your home or vehicle to accommodate your own needs or the needs of a dependant, accommodate a severe disability, pay for palliative care for yourself or a dependant with a terminal medical condition or pay for expenses associated with a dependant's death, funeral or burial.

If you're applying for any of these reasons you need to go through your online myGov account with the Department of Human Services. To apply for early release on severe hardship grounds or if you have been diagnosed with a terminal illness and have less than two years to live, you need to contact your super fund directly.

15. If you retire and take your super you may still go back to work

If you were under 60 when you accessed your money it's all about your intention at the time you retired. As long as at the time of retiring you didn't have any intention of returning to the workforce for more than 10 hours a week you'll be fine - although, of course, this can be difficult to prove.

If you return to work for less than 10 hours a week then there is no problem. There is no time limit on how long you have to be retired but if you return in just a few weeks your stated intention may not be considered genuine.

16. Your super isn't covered by your will

It might surprise you but your superannuation isn't part of your estate and generally isn't covered by your will.

Unless you have made a binding death nomination specifying who should receive your super, the fund trustees will decide how it is distributed. In most cases they will pay it to your dependants. Tax may be payable on part of your super if it goes to anyone other than a spouse or financially dependent children.

For more on super, including how to boost your super and pay less tax, an action plan for casual workers, and and the best and worst funds, visit Magshop.com.au to order Your Super Guide, a Money special edition

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Maria Bekiaris is editorial campaigns manager for Canstar and former deputy editor of Money. She holds a Bachelor's degree in business.
Comments
Jacqui Heywood
October 11, 2018 2.35pm

Hi Maria, Late late comment I know. The only income I have at the moment is share dividends, around $18k. Was wondering I funnel that into my super, will i get a tax concession? Thanks Jacqui

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