Nearly six years ago, in January 2009, we launched the SuperGuide website, and in March 2009 we published the first monthly SuperGuide newsletter. Since that time we have received thousands of questions, from our millions of visitors, on different aspects of superannuation. We try to represent as many questions as possible in the articles we publish, while also ensuring that we cater for those readers who are just beginning their superannuation education.
The updated Top 10 must-know facts listed below are a handy guide for those seeking to understand how the super rules work, and the list also serves as a refresher for those readers who may be more familiar with the super rules. You can find more information about each of the super rules outlined below by using the search function (see the top of the SuperGuide website).
Top 10 must-know super rules
- Superannuation guarantee. Your employer must contribute money to your member account in a super fund on your behalf. This obligation is imposed on employers under the superannuation guarantee (SG) laws. Compulsory employer contributions are often called SG contributions, and the current SG rate is 9.5%. The SG contributions count towards your concessional contributions cap (see Facts 2 and 5 below).
- Tax on concessional (before-tax) contributions. Your employer’s compulsory SG contributions and any before-tax contributions that you voluntarily choose to make (known as concessional contributions) are taxed at a maximum rate of 15 per cent when the super contributions enter the super fund. In comparison, a person earning more than $37 000 a year can expect to pay at least 32.5 per cent income tax for the 2014/15 year on that same income (and up to 47 per cent plus Medicare levy, if she earns more than $180,000), when she chooses not to make before-tax super contributions. Two special rules apply to the following groups of Australians:
- Contributions tax refund for lower-income earners. Since 1 July 2012, if you earn less than $37,000 you are likely to get the contributions tax deducted from your employer’s SG contributions, repaid into your super account, up to a maximum of $500.
- Extra 15% tax on contributions for high-income earners. Since July 2012, if your adjusted taxable income is more than $300,000 a year, the taxman will take 30% of your concessional contributions in the form of tax: 15% as contributions tax, and 15% as Division 293 tax.
- Special tax rate on investment earnings. Earnings on your super fund’s investments are also taxed at no more than 15 per cent. If you’re drawing a pension from your super account, then the earnings on your super savings are exempt from tax.
- Co-contribution. If you make non-concessional (after-tax) contributions to your super fund, depending on your level of income, the government may put some tax-free money into your super fund for you. This is known as the co-contribution scheme.
- Contributions caps. The amount of super contributions that you can make each year is capped, unless you are happy paying extra tax. If you make super contributions that exceed the caps you will have to pay penalty tax, known as excess contributions tax. Alternatively, you can withdraw the excess contributions from your super account.
- Fund choice. In many cases you can choose the super fund you want your employer’s SG contributions paid into. If you don’t choose your super fund, your employer chooses for you. In certain instances, your super fund may be determined by an employment agreement or industrial award.
- Investment choice. In most cases you can decide how you want your money invested by the super fund, by choosing from your super fund’s investment options. If you don’t make an investment choice, then your super money is invested in a default investment option. The default option is typically invested in range of assets, known as a balanced investment option, although some super funds call the default option, a growth option. Investments are spread across higher risk and lower risk assets as a means of maximising investment returns while managing the risk that some investments may lose money.
- Member reporting. Your super fund must send you regular reports (at least annually) on the fund’s performance, and on your own super account’s performance. Your super fund must also state fees charged, and show you any other transactions on your super account (such as the deductions for insurance premiums and taxes).
- Preservation. Your money is preserved in super. That means you generally can’t take your money (your benefits) out of the super fund until you retire at or after your preservation age (from age 55 to 60, depending on your date of birth), or when you satisfy another condition of release. To be allowed to withdraw your super you must, in super’s technical language, satisfy a condition of release and these conditions are very specific (see SuperGuide article: Accessing super early: 14 legal reasons to cash your super).
- Tax-free for over-60s. When you retire on or after the age of 60, you pay no tax on your superannuation benefits, unless you’re a long-term public servant. And there’s more! When you receive a pension (which super funds may also call an income stream) from your super fund, the earnings on the assets that finance your pension are exempt from tax, even when you retire before the age of 60 (for more information, see the ‘Super & tax’ tab at the top of the SuperGuide website).