Superannuation is a way to save for your retirement. Mandatory super fund contributions put Australians way ahead of people in some other counties that have no required retirement contributions.
Superannuation is fairly straightforward for most of us who earn a wage or salary because it comes out of our pay, and that’s the last we think about it.
But as soon as you start really thinking about your retirement or digging deeper into superannuation and tax rules, it becomes complicated.
Will your retirement be as comfortable as your parents or grandparents? Probably not, unless you prioritise your superannuation savings.
Rather than writing an encyclopaedia about super, we decided to write a dead-simple series of three blogs to help you get the best tax benefit out of your superannuation.
First, the basics…
- Every employer has to pay 9.5% of their employee’s total earnings into superannuation. For example, if your ordinary time earnings for the year are $50,000, your employer must pay $4,500 into your super account.
- The minimum contribution will increase again in 2021 to 10%, follow by a rise of 0.5% each year after that until it reaches a target of 12% in 2025.
- The 9.5% is calculated from an employee’s normal pay or salary plus all allowances, commissions leave loading. It doesn’t include dividends or performance-related bonuses.
- For you to be entitled to employer superannuation contributions, you must be under 70 years of age, working either on a full-time, part-time or casual basis and paid over $450 (before tax) per calendar month. If you’re under 18, to be eligible for the employer contributions you also have to be working more than 30 hours a week.
- All superannuation funds have to be ‘complying’ and meet legal standards. If you want to check that your fund is a ‘complying’ super fund, you can go to the Government’s free register of complying funds called ‘Super Fund Lookup’: http://superfundlookup.gov.au/
- If you’re self-employed, you decide if you want to join and contribute to a fund. Most self-employed people can claim a full tax deduction for contributions they make to their super until the age of 75.
- Money in your superannuation account is invested by your super fund. Most super funds offer a variety of investment options that may include stocks, property, currency and more complex investment products. Choosing the investment options, you should consult the super provider and/or get expert advice.
The Tax Office advises that you should check your superannuation situation each year at the same time as you do your tax. To help, they’ve put together a five-step checklist at https://www.ato.gov.au/individuals/super/in-detail/keeping-track/your-5-step-super-check/
Superannuation Contribution Limits
- There’s a limit on how much extra you can put into super each year through salary sacrifice (before tax). This is called the ‘concessional contributions cap’.
- Most people are allowed to contribute between $25,000 and $35,000 (depending on your age), including your employer’s required 9.5% super contribution. (Note: the ATO has a handy chart of how much you’re allowed to contribute at different ages: https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?anchor=Concessionalcontributionscap#Concessionalcontributionscap)
- ‘Concessional contributions’ are taxed at the rate of 15% (which is much lower than the tax rate most of us pay to the ATO on our income). The tax is handled by your super fund. They usually subtract this tax amount from your super account and you’ll see this on your super statement.
- After-tax contributions are called ‘non-concessional contributions’. You don’t receive a tax deduction for these contributions because you’ve already paid tax on the money you received as income, then you add it to your super fund. This way of contributing to your superannuation can really boost your super balance.
- However, the Tax Office has put limits on how much you can contribute each financial year.
- Currently, most people (again, depending on your age) can make a non-concessional contribution of up to $180,000 a year. On 1st July 2017, this amount is intended to decrease to $100,000.
- Above the limit, you have to pay even more tax on this money. For the 2016-17 financial year, above cap, non-concessional contributions are taxed at 49%.
For more information on superannuation, there’s a raft of information on the Australian Tax Office website. Go to https://www.ato.gov.au/Individuals/Super/ to find out more.