Help is available if you have a dispute about your superannuation. Phone the Superannuation Complaints Tribunal on 1300 780808.
What is superannuation?
Superannuation is an investment vehicle for retirement. Money is accumulated during the person’s working life in specialised investments. Employers are obliged to contribute to superannuation on behalf of their employees at legislated rates. Employees may also choose to contribute to the same fund or to other funds available in the market. Self-employed people and spouses may also contribute to superannuation. Tax deductions and/or offsets may be available to people who contribute to superannuation, depending on their circumstances.
Investment horizons
When considering superannuation, it is important to remember that this money is invested for the long term. If you have choices among super funds, or a choice of investment strategies within a fund, you should keep this in mind. Growth assets and compounding interest will help build up larger balances in the long run.
Simplified Superannuation
From 1 July 2007, significant reforms to the taxation of Australia’s superannuation system will be implemented. The Simplified Superannuation reforms will increase retirement incomes, make superannuation simpler and easier to understand for retirees, improve incentives to work and save, and provide greater flexibility over how superannuation savings can be drawn down in retirement. A key reform is the removal of tax on superannuation benefits for Australians aged 60 and over who have already paid tax on their superannuation contributions and earnings. The full details of the Government’s superannuation reforms are available at www.ato.gov.au/bettersuper
Super Choice
Since 1 July 2005, new rules on ‘choice of superannuation fund’ allow more employees to choose a fund for their future super guarantee contributions. If you are eligible to choose under the new rules, your employer will give you a ‘standard choice form’. Under the new rules, you’ll be eligible to choose the fund for your future superannuation guarantee contributions unless:
- your super is paid under a state award or state industrial agreement
- your super is paid in accordance with a collective agreement or an Australian Workplace Agreement
- you are a federal or state public sector employee excluded from choice by law or regulations
- you are in a particular type of 'defined benefit’ fund or you’ve already reached a certain level of benefit in that fund.
More information about Super Choice is available at www.superchoice.gov.au
Access to superannuation
Superannuation is designed for use in retirement and there are legislative rules restricting access to superannuation before retirement. These rules take the form of direct restrictions on access to superannuation before retirement, as well as rules restricting the investment activities of superannuation funds.
Generally, most of your superannuation cannot be accessed until retirement after the relevant preservation age. The preservation age is 55 for people born before 1 July 1960. The preservation age increases by small amounts for people born after this date, until the preservation age for people born after 30 June 1964 is 60. This money is often called your preserved benefit. Contact your superannuation fund for more information. Some people may have unpreserved benefits that can be paid out before this earliest retirement age.
Access to superannuation before retirement is only allowed in very limited circumstances when the individual is considered to be in severe financial hardship or there are strong compassionate grounds for allowing release. Individuals do not need the assistance of an adviser to access superannuation on these grounds. You should contact your superannuation fund directly in the case of severe financial hardship or the Australian Prudential Regulation Authority (APRA) for early access on compassionate grounds. Phone the APRA Information Hotline on 1300 131 060, or write to:
Australian Prudential Regulation Authority (APRA)
GPO Box 9836
Sydney NSW 2001
Transition to retirement
If you are 55 or over, you can ease into retirement, such as by reducing your working hours without reducing your income. Under the ‘transition to retirement’ option you can top up your income with a regular income stream from your super savings.
Members who have reached preservation age and are still working may access benefits through a transition to retirement income stream. The benefit, in part or in full, can be converted to a non-commutable income stream product including lifetime or life expectancy pensions or annuities, or non-commutable allocated pensions or allocated annuities. Once the member has reached age 65 or satisfied another condition of release the allocated pension or allocated annuity can be commuted.
More information about access to superannuation can be found by visiting the ATO superannuation website at www.ato.gov.au/super or by contacting the ATO Superannuation Infoline 13 1020.
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Who can contribute money into superannuation?
From 1 July 2007 superannuation contributions can be made if:
- the member is under 65 years of age
- they are to satisfy obligations under the superannuation guarantee legislation for employees under age 70
- they are mandated (compulsory) employer contributions under an award for employees under age 75
- the member is 65 or over but under 75 years of age and was gainfully employed for at least 40 hours in a period of 30 consecutive days during the financial year in which the contribution is made (the work test)
- by an employer for an employee (including salary sacrifice), or
- as a personal member contribution
- they are on behalf of a spouse who is under 65 years of age or between 65 and 70 and has satisfied the work test.
Contributions cannot be accepted once the member reaches 75 years of age. Funds may be retained in superannuation indefinitely.
Under the Government’s Simplified Superannuation reforms, the self-employed (and other eligible persons currently able to claim deductions for personal superannuation contributions) will be able to claim a full taxation deduction for these contributions made on or after 1 July 2007. This provides equivalent treatment for employees who can salary sacrifice into superannuation and the self-employed.
If you are still employed
Superannuation is now a right for most paid workers and your employer should be paying into your superannuation fund. You may also be paying extra contributions into the same, or another fund.
Make sure you know the name and address of your superannuation fund and don’t forget to tell them if you change your address. Otherwise, you may miss out on some of your superannuation entitlements when you retire.
Australian Government superannuation co-contribution
The Australian Government contributes $1.50 for every dollar of eligible personal superannuation contributions made by qualifying employees. The maximum co-contribution of $1 500 is payable for those with assessable income and reportable fringe benefits of $28 000 or less. This amount is reduced by 5 cents for every dollar of annual income over $28 000. The co-contribution cuts out completely for persons with income of $58 000 or higher.
The Government’s Simplified Superannuation reforms include an extension of the co-contribution scheme to eligible self-employed persons, effective from 1 July 2007, that is, on eligible personal superannuation contributions made on or after 1 July 2007. Both self-employed persons and employees will be subject to the same criteria to be eligible for the co-contribution. For further information phone the Australian Taxation office on 13 1020, or visit www.ato.gov.au/bettersuper
The Government announced in the 2007–08 Budget that it will further reward persons who were entitled to receive a co-contribution in respect of the 2005–06 income year by providing an additional one-off superannuation co-contribution that will double the co-contribution for that year. Only those persons who would have been eligible for the co-contribution in respect of that year under the eligibility criteria that applied at the time are eligible for the additional payment.
Tax on superannuation during the accumulation phase
The income superannuation funds generate is taxed concessionally at a maximum rate of 15 per cent. When a tax deduction has been claimed for a contribution to superannuation, whether by the member or their employer, the amount claimed as a deduction is assessable for tax purposes at 15 per cent in the hands of the superannuation fund. Generally, members’ undeducted contributions (ie. from after tax money) are not subject to the tax. Dividend imputation credits and other tax offsets and tax deductions may reduce the rate of tax actually paid by the fund.
Special rules apply to the taxation of withdrawals from superannuation funds. A surcharge tax applied to certain contributions for high income earners up to 30 June 2005. Although superannuation surcharge is now abolished a levy may still apply in certain circumstances for surchargeable contributions made up to 30 June 2005.
As part of the integrity measures required to implement the Government’s Simplified Superannuation reforms two new caps (and potential taxes) on contributions have been introduced on individuals where their concessional contributions (generally those that are deductible and assessable in the fund’s hands) and/or their non‑concessional contributions (generally those that are undeducted) exceed certain annual caps.
Make sure your super fund has your tax file number. If it doesn’t you may be charged a higher tax on contributions and your fund may not accept some types of contributions.
More information about superannuation contributions and about tax on superannuation contributions and earnings can be found by visiting the ATO superannuation website at www.ato.gov.au/super or by contacting the ATO Superannuation Infoline 13 1020.
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Types of superannuation funds
Retirement Savings Accounts (RSAs)
These investments have been made available through financial institutions to provide a very safe environment for superannuation savings. These accounts are suitable for people with small balances in superannuation or for those whose investment term is short. The accounts provide a guarantee from the financial institution and they try to keep costs to a minimum. By providing a guarantee for the capital in the account, most of the money held in these accounts is invested in the cash market. In times of low interest rates the return on these accounts will be low. The risk the account holder carries is that the return will not be enough, over time, to produce an adequate retirement income.
Public offer superannuation funds
These are superannuation investments available to any member of the public who is eligible to contribute to superannuation. This group includes master trusts that cater for superannuation investments.
Most of these funds offer several investment options ranging from capital guaranteed to growth funds. Capital guaranteed options usually have their assets invested in the cash and fixed interest markets. Capital stable funds usually have some exposure (10 per cent to 40 per cent) to the share and property markets. Managed and growth options would show greater exposure over the share and property markets, in some instances up to 90 per cent or even more.
You could decide, or seek advice to help you decide, how to spread your investments over the options available.
Life insurance and/or death and disability cover may be included, at a cost, in these funds.
Industry funds
These funds first became popular when superannuation became part of the various industry awards. Each industry set up a fund for people working in that industry although they are now often available to members of the public. Life insurance and/or death and disability cover is usually included at a cost in these funds.
Employer-sponsored funds
These are superannuation funds set up by the employer. There is a general requirement for equal numbers of employer and employee representatives on the trustee board. These funds may be managed by a fund manager appointed by the trustee board or by the employer personally. There are, however, strict guidelines concerning how the money within the fund can be invested.
These funds may include life insurance and/or death and disability cover at a cost.
Self managed superannuation funds (SMSF)
Those who wish to have more control over how their superannuation is invested and believe they have the expertise to manage their own investments, may set up their own superannuation funds. These are known as ‘self managed superannuation funds’ or ‘Small APRA funds (SAFS)’ (they were formally known as Do-it-yourself superannuation or DIY funds).
SMSF’s are regulated by the ATO. They are small superannuation funds with less than five members where all members must be trustees and are responsible for making decisions about the fund for the benefit of all members in the fund. SAF’s are regulated by the Australian Prudential regulation Authority (APRA). They are small superannuation funds with less than five members and have an appropriately authorised trustee appointed who is independent to the members.
Many informative books on this topic are readily available in bookstores. This is a complex area and it is best to get professional advice from a licensed financial planner and/or an accountant before setting up a self managed superannuation fund. More information on setting up and operating theses funds can be sought from the ATO and APRA.
Lost members register (LMR)
The Lost Members Register (LMR) is a central register administered by the Australian Taxation Office (ATO), of superannuation fund members and retirement savings account (RSA) holders when their fund or account provider has lost contact with the person.
A lost member or account holder is a member of a superannuation fund, approved deposit fund, eligible rollover fund or is a holder of an RSA who is not contactable, is an inactive member/account holder or joined the fund as a lost member or a lost RSA holder.
Many superannuation funds have access to a product called SuperMatch. SuperMatch enables funds to request searches of the LMR on your behalf. SuperMatch can also search for any unredeemed Superannuation Guarantee vouchers or Superannuation Holding Accounts Reserve accounts that may belong to you.
To find your lost superannuation you can contact your current superannuation fund to conduct a search for you via SuperMatch. Alternatively, you can complete the Lost Members inquiry form located on the superannuation website at www.ato.gov.au/super under ‘Lost Members Register’.
The ATO also has a tool that can assist in locating lost superannuation called Superseeker. Superseeker will search the LMR and other tax office records including superannuation holding accounts special account and superannuation guarantee records. It is available online via the ATO website or by phoning the Tax Office on 13 28 65.
Where a person’s details are found to match those of an account listed on the LMR, the ATO can provide the person with the name of the superannuation fund or where the RSA account is held.
As part of the Government’s Simplified Superannuation reforms, the ATO will be undertaking an extensive letter campaign in 2007–08 and 2008–09 to contact lost members and advise them of the details of their lost accounts.
People who are over age 65 may have superannuation which has become ‘unclaimed superannuation’. Up until 1 July 2007, this money has been paid to the state or territory government in which the superannuation fund is based. This may not be the state or territory in which the person lived or worked. Unclaimed superannuation is held in trust by the relevant government until claimed by the rightful owner or their estate. Superannuation which becomes ‘unclaimed’ from 1 July 2007 onwards will be paid to the Australian Taxation Office, which will provide a single access point for individuals searching for lost or unclaimed superannuation and a simpler claims process going forward.
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Termination payments
When you leave your job you may be entitled to receive a termination payment. From 1 July 2007, termination payments will either be employment termination payments or superannuation benefits.
Superannuation benefits are generally payments from superannuation funds. An employment termination payment is a lump sum payment made in consequence of the termination of employment. They can include:
- amounts for unused rostered days off
- amounts in lieu of notice
- a gratuity or ‘golden handshake’
- an employee’s invalidity payment (for permanent disability, other than compensation for personal injury), and
- certain payments after the death of an employee.
Employment termination payments do not include:
- superannuation benefits,
- a payment for unused annual leave or unused long service leave, or
- the tax-free part of a genuine redundancy payment or an early retirement scheme payment.
The income tax treatment of both types of payments will change. For example, employment termination payments made on or after 1 July 2007 won’t be able to be rolled over into super unless you meet the requirements of the transitional arrangements.
What are the changes from 1 July 2007?
The changes that will apply from 1 July 2007 are as follows:
- Reasonable benefit limits (RBLs) will be abolished. RBLs restrict the amount of concessionally taxed termination and super benefits an individual can receive over their lifetime. Eligible termination payments which exceeded the reasonable benefit limits for income years before 2007–08 must be correctly declared in income tax returns for those years.
- A payment will generally need to be received within 12 months of the termination to qualify as an employment termination payment. Payments received outside 12 months will be taxed as ordinary income at marginal tax rates.
- Employment termination payments made after 1 July 2007, (other than those made under the transitional arrangements) won’t be able to be contributed or rolled over into super.
- From 1 July 2007, any invalidity or pre-July 1983 amounts in a life benefit employment termination payment will be tax-free. The tax on any remaining taxable component will depend on your age.
- The cap on concessionally taxed employment termination payments is $140 000 for the 2007–08 income year and will be indexed. The taxable components of all life benefit employment termination payments received in an income year are counted towards this cap. The taxable components of any payments in excess of the cap are taxed at the top marginal rate plus the Medicare levy.
- The tax treatment of death benefit employment termination payments will depend on whether they are made to a dependant or non-dependant and how much is paid.
Are there any transitional arrangements?
Transitional arrangements apply to employment termination payments made between 1 July 2007 and 30 June 2012 if you were entitled, as at 9 May 2006, to a payment made on the termination of employment under:
- a written contract
- an Australian or foreign law (or an instrument under such a law), or
- a workplace agreement under the Workplace Relations Act 1996.
These documents must do this by referring to the amount of the payment or a method or formula to work it out. It may allow you to choose how the payment is made— for example, as a payment made in kind, such as shares. Transitional termination payments may be:
- contributed (in full or in part) to a super fund, or
- used (in full or in part) to buy a super annuity before 1 July 2012.
More information about employer termination payments, their tax treatment and the transitional arrangements is available from the superannuation website at www.ato.gov.au/bettersuper or by contacting the ATO Superannuation Infoline 13 10 20.