Superannuation – Do You Understand the Small Print?

In today’s fast moving superannuation environment, you may find yourself at a loss to understand the terminology and complexity of superannuation.   Many of us are aware that it is highly probable that the fund you chose, or had chosen for you, several years ago may no longer be providing you with the correct strategic growth for your life stage.  As the Government continues to tweak the rules around incoming and outgoing funds, age of access, taxation and investment options, are you confident you’ve kept up with all the changes.   It has never been easier to move funds ensuring that you are capturing efficiencies in areas of ‘Fees and Charges’ and included policies.  In this article we provide a snapshot of the terms you should be familiar with, if you are, or have been receiving superannuation from an employer.

  1. Superannuation Guarantee. (SG)

This is a compulsory amount you employer must contribute to your super account.  The rate is currently set at 9.5% until 30 June 2021.

  1. Maximum Super contribution base.

The 9.5% SG is payable up-to a limit.  This limit is called the maximum super contribution base.  The maximum earning base for 2017/2018 is set at $52,760/ qtr.  If you earn above this amount your employer does not need to pay the SG for the part of your earnings above the maximum base.  The base amount changes annually and is indexed with average weekly ordinary time earnings.

  1. Government co-contribution.

Co-contribution is a Government scheme to boost savings. In 2017/2018 the maximum entitlement is $500, based on an income of $36,813 – $51,813 There is a list of qualifying criteria to be met, so this is one you should check with our in-house Super specialist

  1. Preservation.

You can access your super when you retire or meet certain conditions of release.

Generally, super cannot be accessed until you:

  • reach age 65, or stop working with an employer on or after age 60
  • retire permanently from the workforce after reaching your “preservation age”
  • reach your preservation age and receive super benefits as a non-commutable income stream (that is, an income stream that generally cannot be converted to a lump sum after it starts such as a transition to retirement income stream)
  • die or become totally and permanently disabled
  • are diagnosed with a terminal illness with a life expectancy of less than 24 months
  • leave or change your employer and your preserved benefit is less than $200
  • are a temporary resident permanently leaving Australia
  • satisfy the relevant Australian regulatory body that your money should be released for compassionate reason
  1. Concessional contribution caps.

Concessional contributions are contributions made to your super account before tax is deducted. These include the SG, personal contributions, employer contributions above the SG and voluntary salary sacrifice payments.  The cap varies by your age and if you have multiple funds, the amounts are added together and count towards the cap.

In 2017/2018 financial year the cap is $25,000

Unused portions of previous years caps can be used in subsequent years for a period of 5 years provided you have a balance of less than $500,000.

If you go over the concessional contributions cap you will pay extra tax on the excess at your marginal rate less 15% tax already paid.

  1. Non-concessional contribution caps.

Non-concessional contributions are after tax contributions you make to your super fund.

Again, contributions made across multiple funds are counted as one.

Non-concessional contributions can only be made if your balance is less than $1.6million

There are circumstances where an additional 2 or 3 years cap can be brought forward, however there are strict conditions applicable and you should consult our super specialist to avoid costly mistakes.  Transition arrangements apply if you triggered a bring forward in the 2015/2016 or 2016/2017 financial years.

  1. Tax

Super contributions, earnings and withdrawals can be subject to tax:

Contributions. When contributions are made into your super account, they are taxed in the fund at 15%

Earnings.  Investment earnings from your super fund are taxed at a rate of up to 15%. This tax is reflected in the unit price for each investment option.  Investment earnings from your pension fund are tax free.

Withdrawals. Generally, if you take any part of your super benefit after age 60, no tax is payable.  Prior to age 60 some tax may be payable and will be deducted from your super benefit by the fund.

The tax deducted from the account depends on the components within your account. Superannuation accounts are divided into two components for tax purposes, a tax-free component and a taxable component. The tax-free component will always be tax-free, the taxable component may attract tax depending upon your age.
This is by no means an exhaustive list of terms and the complexities of each item should only be addressed with a full understanding of your personal circumstances.  If you would like further clarity on your superannuation, if you would like to determine if your current fund is the best fit for your life stage and if you would like to have a review completed on the fees and charges to determine if you’re in the best fund for your circumstances speak with the Financial Planning team on 1300 925 081.


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