How super works
Superannuation is your hard-earned money, and someday you're going to need it. So it's important to ensure you understand how it works and how you can make the most out of it.
As an eligible employee, super is compulsory and forms part of your overall pay. Your employer must pay a minimum 9.5% of your ordinary time earnings (OTE) as a contribution to a complying super fund like Club Plus Super. This is called the Superannuation Guarantee (SG).
There are some exceptions to this:
- If you earn less than $450 in a calendar month
- If you are aged under 18 and work less than 30 hours/week and earn less than $450.
What makes super so special is the way in which investment returns are taxed. Unlike other comparable investments, which are typically taxed under marginal income tax rates (as high as 45%) the investment returns of your super fund are generally taxed at only 15%.
This low rate of tax means your super can potentially grow in value at a faster rate than other investments invested in the same assets.
When you contribute to super, your money is pooled together with those of other fund members and invested by professional fund managers.
Typically, super funds like Club Plus Super, have a number of different investment options, each with its own investment strategy. Depending on what options you choose, your money can be invested in Australian and international assets including shares, property, fixed interest and cash. They can be invested primarily in a single asset class, say, Australian shares, or they can be invested in a diversified mix of asset classes, for example, the MySuper / balanced option which contains a range of different asset classes including shares, property and fixed interest.
Club Plus Super also gives you the ability to self-manage some of your own super or pension investments through the Club Plus Super Direct Investment Option (DIO).
At Club Plus Super, you can choose your investment option(s). This is an important exercise and you should seek advice if unsure.
When you can access your super
The rules governing when you can receive your super are as follows:
- When you reach age 65
- When you reach ‘preservation age’ (see table below) and retire
- Under the rules of a 'Transition to Retirement' pension (if you are eligible)
|Date of birth||Preservation age|
|After June 1964||60|
|July 1963 – June 1964||59|
|July 1962 – June 1963||58|
|July 1961 – June 1962||57|
|July 1960 – June 1961||56|
|Before July 1960||55|
You may also be able to access your super under the following special conditions:
- Financial hardship (conditions apply)
- Compassionate grounds, e.g. to cover medical treatment, funeral expenses or to prevent foreclosure on your home
- Total and permanent disability
- Terminal illness
- You are a temporary resident departing Australia permanently
- Your benefit is less than $200 and you leave your employer
- You take out a transition to retirement pension if you are aged 55 or more and continue to work.
If you die, your super is generally paid to your nominated beneficiary. If you have not nominated a beneficiary the fund trustee will decide where your benefit goes. Club Plus Super also offers members the ability to make a 'Binding Death Benefit Nomination'. A binding death benefit nomination is a written direction to the Trustee of Club Plus Super that allows you to state who you want to receive your benefit payment upon death. With a valid binding death benefit nomination in effect at the date of your death, the Trustee must pay your benefit to the beneficiaries you have named in the percentages you have allocated.
Once you meet your preservation age or one of the conditions of release above, you have three options available to you:
- You may keep your funds in a super account and withdraw a lump sum from time to time;
- You may roll over your funds to an account based pension and receive regular payments (like an income stream); or
- You can withdraw the funds.
Keeping your money in the super system can be a very tax-effective approach but the advantages will depend on your overall situation.
You should be aware of the different ways you can contribute to super as each method is subject to different rules.
|Types of super contributions||Tax|
||15% up to the cap|
||No tax up to the cap|
Concessional versus non-concessional super contributions
Concessional contributions include employer contributions and salary sacrifice contributions, as well as deductible contributions made by self-employed workers.
Concessional contributions are taxed at 15%. For example, a contribution of $1,000 to your fund will have $150 deducted for tax, leaving $850 to be invested in your super.
In the 2014/2015 financial year, if you're aged below 60 contributions you make to super up to $30,000 (including your employer’s compulsory superannuation guarantee (SG) payments) will be taxed at the concessional rate of 15%. If you're aged 50 and over, contributions up to $35,000 will be taxed at the concessional rate of 15%. If you exceed these caps, you may have to pay additional tax of 30% plus Medicare levy.
(N.B. There may be additional tax payable for concessional contributions if your super fund does not have your tax file number recorded).
Non-concessional contributions include your after-tax contributions such as non-deductible personal contributions and spouse contributions.
These are also called after-tax contributions because you’ve already paid income tax on the money before contributing it to your super.
No tax is payable on non-concessional contributions as long as the total of these contributions each year is below a set cap ($180,000 for the 2014/2015 tax year). Exceeding this cap will attract an extra 47% tax plus Medicare levy.
(N.B. if you are under age 65 at any time during the financial year, you may be able to bring forward two additional future years of contributions to make a larger one off contribution. This therefore enables you to contribute up to $450,000 in a single year; however, you will not be able to make further contributions for the next two financial years).