Superannuation is usually the first word that comes to mind when thinking about retirement. It’s an important topic for everyone, but it can be especially perplexing for young people just starting out in their careers, especially with all the misconceptions floating around.
If you’re starting your career or are already well established, knowing what the real facts are about superannuation is essential for ensuring a financially stable future.
So, here are 5 things you need to know about superannuation.
1. Contributions
As of 1 July 2021, your employer is required to contribute 10% of your salary to your superannuation account. This contribution is known as the Superannuation Guarantee (SG). The employer is required to do so quarterly.
Your contributions, once they have entered your fund, will be taxed at a flat rate of 15% for contributions up to up to $27,500 (from 1 July 2021) per year in pre-tax contributions, which can include a combination of employer superannuation guarantee and salary sacrifice. Salary sacrifice is a method of reducing your taxable income by sacrificing part of your pre-tax salary into superannuation before tax is deducted.
The main advantage of salary sacrificing is the fact that your superannuation contribution is taxed at a flat rate of 15%, whereas other forms of income are taxed at marginal rates.
2. Super Investments
Superannuation contributions on top of contribution caps can be invested in a wide range of assets such as cash, stocks and shares and property.
Depending on your risk appetite, you can choose to invest in more conservative or risky assets. But remember, the higher the risk, the higher the potential return – but also the higher the potential loss. And there it's important to understand the type of assets when choosing your portfolio.
Some assets where your funds will be invested include:
- Australian and international shares
- Real estate investment trust(REIT)
- Fixed products such as bonds
- Gold and other metals
If you prefer a little bit of control over your super funds, you can opt for what's called self-managed super funds (SMSF). SMSFs are different from other superannuation funds as they allow you, the trustee, to have greater control over how your money is invested. If you'd like to know more about SMSF, ask your local tax accountant or financial adviser for more information.
3. Accessing Your Super Fund
Once you have reached your preservation age (between 55 and 60 years of age), which is the age at which you stop getting a compulsory employer super contribution and you can access your super fund, either as a retirement income stream or a lump sum (or both) -so long as you remain permanently retired.
There may be tax implications depending on the type of withdrawal, age of the member, and the type of super fund.
Alternatively, if you wish to continue working and you're still below 65 years of age, you can access 10% of your super balance through a scheme called Transition to Retirement strategy (TTR).
4. Super Death Benefits
What happens to your super if you die?
The death nomination will determine how your super is paid out. If you're single, the nominated beneficiary will automatically receive it all. If you don't have any nomination in place, the trustees of the fund will decide who gets your super and insurance benefits.
There are two types of nominations you can make: binding and non-binding. A binding nomination is one that must be followed, whereas a non-binding nomination is not compulsory and only offers guidance and ultimately the trustees will decide the final outcome.
If In Doubt, Consult With a Professional
Superannuation can be complex, so if there are any questions or you're unsure of anything, speak to an SMSF accountant or financial adviser. They will be more than happy to help you out and explain everything in detail.
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