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Superannuation

Superannuation - What is superannuation?

Superannuation is a programme put in place by the Australian government to encourage individuals to partake in added savings for retirement

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In Australia, the scheme for retirement consists of a combination of funding that can be found in other countries as well. Essentially, superannuation refers to a part of this scheme that is used in providing income to individuals once they have retired.

Superannuation or ‘super’ generally requires Australian residents to put a percentage of their income towards saving for their retirement. Contributions to a super also come from employers, as well as sometimes the Government in the case of low-earners.

How superannuation works

In Australia, a superannuation fund comprises of regular contributions added over the course of an individual’s career. The fund is pooled and invested in assets in order to continue to grow both from interest and from continued contributions.

It is possible for you to select the type of fund you would like your super contributions to go to, but there are limitations so it’s important to discuss your choice with your employer. There is a standardised form to fill in to specify your fund.

However, depending on your employer or industry, it might not be possible to choose your fund. In these cases, your employer will send all contributions to a default ‘MySuper’ account.

Contributing to your superannuation

As mentioned above, there are a few different sources of contributions to your super account. They include a combination of the following, depending on your employment situation:

Employer super contributions: Similar to a pension, your employer will pay a percentage of your salary into your super. This amount is usually 9.5% of your salary on top of your existing salary.

Personal super contributions: For personal contributions to your superannuation fund, there are a number of different options.

  • Salary sacrificing: This is an organised means of contributing a designated amount of your salary, deducted automatically before tax. This amount is then sent to your super along with your employer contributions.
  • Direct personal contributions: Involves contributing from your salary after tax, through your employer. If you are considered a low-earner (less than $37,000 as of July 2017) and choose this method, you might be eligible for supplemental contributions from the government.
  • Bank or fund transfers: It’s also possible to transfer money directly to your super account, either from a bank account or from another fund. It is often recommended to combine funds if you have multiple supers, in order to avoid unnecessary additional fees.

Government super contributions: For low-earners who contribute personally to their super after tax, there is an opportunity to receive co-contributions from the government equaling up to $500.

Once you retire, you can access your super as a pension account, providing you additional financial resources. At retirement age, you can decide whether to open up your super account so you have access to the full amount, or to have it function as an income stream.

Self-employment and superannuation

If you are self-employed, it is of course up to you to make contributions to your super. If you’ve previously been employed and already have a super set up, it’s possible that you can continue to make personal contributions to this fund once you set out as self-employed.

How you contribute to your super then depends on one factor: how you receive payment for your work. This means that you either have set a wage for yourself or receive income less regularly depending on business income.

  • If you have a wage: you can set up a system to transfer a specified percentage, similar to how it would work with employer contributions.
  • If you work on income: you can make contributions from time to time when you have a comfortable revenue situation.

In either case, it’s always recommended to discuss your superannuation contribution plans when you’re self-employed to ensure that you’re on track for retirement.

In making contributions to a super when self-employed, there are some advantages:

  • Lower tax (15%) on earnings
  • Tax-free benefits after the age of 60 under the super release
  • A tax deduction for your contributions (up to a certain amount)

This will require you to make regular contributions to a super while self-employed in order to qualify for the above benefits.