Self managed super is an investment vehicle that allows Australians to save for their retirement in a tax effective way.

To get the best financial advice on self managed super, visit James Gerrard – Certified Financial Planner professional from www.financialadvisor.com.au.

Employers are required to pay a minimum of 9% of each employee’s income into a superannuation fund of the employee’s choice, and the funds are then invested to maximise returns for the worker’s retirement.

The monies held in a superannuation fund are not able to be accessed until a condition of release has been met.  For most Australians the condition of release will be triggered upon their retirement, however there are other conditions such as financial hardship.

Many Australians will not have sufficient self managed super monies available to fund a comfortable retirement.  For this reason, you are permitted to make additional contributions to your super over and above the 9% contributed by their employer.

Whilst the Commonwealth Government promotes additional super contributions through schemes such as the Super Co-contribution, it also places limits on the maximum contributions allowed each year to ensure that wealthy fund holders are not exploiting the tax friendly nature of superannuation.

(more…)

Superannuation, or Super, was introduced in order to provide guaranteed retirement income for Aussie workers. On its face, the system is incredibly simple. Once you begin working and meet a certain set of criteria, your employer is obligated by law to contribute 9% of your earnings towards your retirement. (This could well be increased in time to come). This is done by default whenever you are hired and these contributions towards your retirement are guaranteed by law. However, recent legislation has shifted more responsibility to the individual. This gives you a wider range of control over your financial future, but much more responsibility as well. In order to ensure that you meet your goals for retirement, it’s best to know the basics about Australian superannuation and super funds.

Am I eligible for Super?

Beginning in 1992, employers have been required by law to contribute to superannuation on behalf of employees, regardless of age.  Currently, employers must pay a minimum of 9% of an employee’s regular earnings, which includes hourly wages and salary, bonuses, commissions, casual loadings and shift loading but does not include overtime.  Because this money is set aside (with significant tax benefits) specifically for your retirement, you are not allow to access it unless you:

• Retire (see below for retirement eligibility)
• Become an invalid (i.e. unable to work)
• Become deceased and benefits are disbursed to beneficiaries
• Qualify under “compassionate grounds”

Drawing from your super fund without qualification can result in hefty tax penalties and further possible legal action.

Contributing to superannuation

Employer contributions are called super guarantee (SG) payments and are paid once every three months. Depending on your particular super plan, you will receive periodic statements (usually annually) showing your balance and contribution history. In order to qualify for employer contributions, you must:

• Be between 18 and 70 years of age
• Receive $450 in monthly earnings, before tax
• Work over 30 hours a week (if under 18 years old)

You can also make extra, voluntary contributions to your superannuation for a tax benefit (see below).

Choosing a fund

As of July 2005, workers have the option of choosing which superannuation to contribute to. This allows workers to change funds when moving to a new employer, consolidate multiple superannuation accounts and seek better rates and performance. Employers must provide eligible employees with a standard choice form (NAT 13080) and individuals must choose a complying super fund (see the Super Fund Lookup). If you opt not to choose your own super fund, you will automatically be signed up for the default fund, which is often a corporate fund, an industry fund or a retail fund bought at a wholesale rate. You can also choose to manage your own superannuation.

Tax benefits

Contributions to superannuation offer a tax advantage as the tax rate is lower than the amount of taxes you would pay if you received the money as income.  Currently, super is taxed at a flat concessional rate of 15% on contributions, earnings and final payout. However, the effective tax rate is often much lower, averaging at about 6.5%, due to dividend imputation (i.e. elimination of double taxation of dividends for corporations) and other factors.

As mentioned above, you can choose to make voluntary contributions to your super fund above and beyond the super guarantee payments and receive the same tax break. However, the amount that you pay is capped at a certain amount, depending on the type of contribution. Contributions made that exceed the capped amount will incur an even higher tax. There are three different caps:

• Concessional cap – This is the pre-tax amount, including your employer contribution and any salary-sacrificed (deductions directly from your paycheck) contributions.
• Non-concessional cap – This includes after-tax contributions from your personal income.
• Transitional – These are contributions made by individuals over 50 years old prior to June 2012

Visit the ATO website for a chart showing the caps for the current financial year.

When can I start receiving benefits?

The age at which you can access your superannuation benefits (i.e. preservation age) depends on your date of birth. For workers born prior to 1 July 1960, the preservation age is 55 years. Those born in subsequent years become eligible later, in an effort to keep Australians in the workforce.

When you retire at preservation age, you can receive your benefit as a lump sum, a pension or a combination of both, depending on your super plan.

If you are disabled permanently, you may be able to access your super benefits. If you are temporarily incapacitated, you may be eligible for a “non-commutable” income during your recovery.

You can also receive super benefits if you fall upon “severe financial hardship” (i.e. been receiving a Commonwealth income support payment for 26 weeks) or qualify on “compassionate grounds.” Compassionate grounds allow early release of super benefits to pay for medical treatments or medical transport not covered by the public health system or for mortgage assistance.  For more information on compassionate grounds, see the APRA website.

Getting the most out of Superannuation

The process of choosing, funding and tracking your super is very nuanced and unique to each individual. Make sure to consult a financial professional and supplement their advice with independent research. Taking an interest in your superannuation benefits is highly recommended – after all, it is your retirement on the line. Take time to educate yourself and track the progress of your financial goals.

You can also do your own Superannuation Fund!

Australian Superannuation laws allow eligible people and entities the ability to have their own Self Managed Superannuation Fund – SMSF. There are many organisations such as accountants and financial planners who will help you set up such a fund. You can read more about it in other sections of this website.