A Guide to Superannuation Fundamentals

Information verified correct on October 25th, 2016

Helpful information so you decide which superannuation fund is best for you.

As the current financial climate has shown, considering your retirement years is something that has become increasingly important even if retirement still seems a long way off. When you retire, you will probably want to enjoy the fact that you finally have some time to relax and do the things you want in life without having to worry about work. However, if you have little to nothing coming in by way of income and you have no savings, your golden years are unlikely to be as exciting and enjoyable as you may have hoped.

One way to ensure that you are able to save towards adequate retirement funds and the chance to do the things that you want in later life is to ensure that you have superannuation in place. Superannuation provides a tax efficient way of saving towards your retirement so that you not only have income to manage your financial commitments but you also have money that you can use to treat yourself during your retirement years.

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    More about superannuation

    It is important to know the basics of superannuation, as this could be your most tax effective and simple way of saving towards your retirement years. Some of the basics and fundamentals relating to superannuation include:

    What is superannuation?

    Superannuation is a simple and cost effective way of saving towards your retirements. It can be made up from contributions made by both you and your employer and the money that accumulates in invested in a number of ways, such as government bonds and shares.

    How do employer contributions work?

    The contribution made by employers, under the Superannuation Guarantee, is 9.5% of your regular income (i.e. not including any benefits or overtime). When it comes to the employer contribution, the employer is not obliged to pay under certain circumstance, such as:

    • If employees are aged under 18 and working 30 hours or less per week
    • If employees are earning less than $450 per month
    • Where employees are aged over seventy
    • If a person is being paid for 30 hours per week or less for domestic or private work

    Employers can pay over and above the required level under circumstances such as making contributions that would otherwise be paid as salary (salary sacrifice), as a type of co payment, or even as a high performance reward.

    Should you add your own contributions?

    If you do have some disposable income you may want to consider contributing to your superannuation rather than looking at other investments. The tax effective nature of the super means that your contributions could go much further in terms of value than, for example, putting the money into savings. Any money can also be taken direct from your salary, which offers greater convenience and ease. Other benefits include compounded interest on contributions and access to various rebated and financial incentives.

    How is the benefit paid?

    The money from your super is paid out to you when you retire, or is paid out after disability or death. Once taxes and charges have been taken, you can receive the benefit as a lump sum payment, as regular instalments, or as a combination of the two.

    What are the tax benefits of superannuation?

    Superannuation has become one of the most cost effective ways to save towards retirement because of the tax benefits. Favourable tax rates mean that the maximum tax rate on your employer's contribution and on the income you earn from the investments made via the fund will be 15%. Contributions made through salary sacrifice are taxed at 15%. Once you reach the age of 60 you should be able to withdraw your super benefits tax free, either as a lump sum or as an income stream. You may even be able to enjoy tax benefits if you are contributing to the super of your spouse.

    What important information should you be able to access when it comes to your super?

    When it comes to your super, there is certain important information that you are entitled to access and which will make it easier for you to keep track of things. This includes:

    • A member statement, which is often provided on an annual basis. This provides details of the amount of benefit at the beginning and end of the given period along with the preserved amount and relevant contact details.
    • A fund reported, which is usually provided on an annual basis. This should show the financial position of the fund and provides details of any changes that may affect you.
    • A statement that provides you with details of your benefit, which includes details of death benefits, when you leave.

    Seeking professional advice? Get in contact with an advisor today

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