Essential facts about superannuation
What do you get from super?
Super is an excellent way to invest money for your retirement. As you contribute to super, your retirement savings can grow because your fund can invest your money at low rates of tax. Tax concessions and other government benefits currently make super one of the best ways to invest for the long term.
Since 1 July 2007, under new laws, benefits paid from taxed super funds to most people aged 60 or more are completely free of tax, whether you choose to draw a regular income or a lump sum.
Changes to age pension 'assets test' rules mean that many more people may be eligible for a part age pension and the valuable concessions that go with them.
You also have greater choice over how and when you draw down your super in retirement. If you're over 65 and don't yet want to take your super benefits, your fund is no longer forced to pay them to you.
Super funds may also offer additional benefits, such as life insurance cover and total and permanent disability insurance (insurance if you become disabled or sick for an extended period of time).
Joining a fund
In most cases, you join a fund as soon as you're employed, because by law your employer must pay contributions into a fund on your behalf.
If you're self-employed, you can decide if you want to join and contribute to a fund. If you are not currently employed, or never have been employed, you can still join and contribute to a fund up to age 65.
Immediately you join a fund, give them your Tax File Number so you don't pay unnecessary tax or miss out on other benefits.
How much gets paid into your super?
Under the 'superannuation guarantee', your employer must pay in 9% of your earnings, for example an extra $4,500 if you earn $50,000 each year.
Most people's 9% is based on 'ordinary time earnings', which under the law means earnings for your ordinary hours of work. Earnings is defined in more detail by law, by your terms of employment or by your super fund trust deed. Visit the Australian Taxation Office (ATO) website.
Your employer or you may pay extra money into super at any time. If you're self-employed or not employed, you decide how much to pay in. Once you reach age 65 you need to meet a work test to contribute, and contributions are generally not allowed after you reach age 75.
What type of fund can you join?
Fund rules control who may join. There are four basic types of funds.
| Corporate funds | Open to people working for a particular employer or corporation. (Employers may run their own plan or run it through an investment manager or a master trust.) |
| Industry funds | Open to people in a particular industry or under a particular industrial award. Some industry funds are open to anyone. |
| Retail funds | Open to the public. They are run by financial institutions. |
| Self-managed super funds | Open only to you and up to three other people. More about self-managed super funds |
In order to obtain special concessions you must join a 'complying' super fund that meets legal standards. The ATO website has a free register of complying super funds. Check that a fund is a complying fund on the ATO's register
Otherwise, super can be paid into a 'retirement savings account', a special deposit account with banks or other deposit-taking institutions. (For amounts of $10,000 or more, you may wish to consider other super arrangements that may give a greater return over the long term.)
Who controls your super?
Trustees run your fund. By law, they must act honestly and prudently, and make decisions in the best interests of all members.
Trustees hold office under the fund's rules. Often, trustees hire professionals to invest the fund's money and to look after fund assets, membership records and other tasks. Trustees still remain responsible, and if they fail in their duties, courts or government agencies can remove them.
Who regulates the funds?
Three government agencies regulate and enforce legal standards to protect you and your benefits:
- ASIC regulates what funds tell you and how they abide by company law
- the Australian Prudential Regulation Authority (APRA) regulates how funds operate (except self-managed ones) so that they can meet their obligations to you
- the ATO regulates self-managed funds, employer contributions (the superannuation guarantee), co-contributions and super tax rules.
Government agencies don't guarantee your fund's capital or investment earnings.
More about superannuation
FIDO Website: Printed 11/21/2008
