On this page
- 1. Slash your income tax bill
- 2. Avoid having a medical for insurance
- 3. Ensure your money goes where you want
- 4. Pay less tax on your investment returns
- 5. Cheaper insurance cover for members
- 6. Protection against bankruptcy
- 7. Free money from the government
- 8. Tax-free income in retirement
- 9. Continuing insurance cover
- 10. Ability to invest in bigger assets
Besides being a great way to save for retirement, Australia’s super system offers some valuable – but little-known – benefits for super fund members.
If you’re in the right super fund, there is a swag of freebies and helpful services you can receive – often without having to lift a finger.
Here’s SuperGuide’s list of the top 10 super benefits and how they can help improve your financial situation.
1. Slash your income tax bill
Super provides a simple way to reduce the amount of income tax you pay each year.
By setting up a salary sacrifice arrangement with your employer, you can swap the income tax rate you would normally pay on some of your earnings with the lower 15% super contributions tax rate. For more information, see SuperGuide articles Salary sacrifice and super: How does it work? and How do tax-deductible superannuation contributions work?.
If your employer is not on board with salary sacrifice, then consider making a voluntary personal contribution and claiming a tax deduction. Since 1 July 2017, most people aged under 75 can claim a tax deduction for voluntary personal contributions they make into their super account up to the annual concessional (before-tax) contributions cap of $25,000 (in 2019/20).
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Good to know
Prior to 1 July 2017, only self-employed people and those earning less than 10% of their income from salary and wages could claim this tax deduction.
Under the new rules, most people under 75 years of age (this includes those aged 65 to 74 who meet the work test) can claim the tax deduction. For more information, see SuperGuide article How do tax-deductible superannuation contributions work?.
2. Avoid having a medical for insurance
Most large super funds automatically offer new members death and total & permanent disability (TPD) insurance cover without needing to undergo a medical examination, making it a great way to get insurance protection.
Automatic cover can be a real benefit for people unable to obtain cost-effective cover outside super due to age, or ill health. It can also be valuable if your annual premium is likely to include exclusions due to pre-existing medical conditions (such as heart problems or diabetes). For more information, read SuperGuide article Life insurance through super: A definitive guide.
3. Ensure your money goes where you want
Disgruntled family members challenging super death benefit payments are becoming increasingly common. If you use a binding death benefit nomination (BDBN) for your super account, you can ensure your super death benefit goes to the people you intended when you die.
A correctly made BDBN provides certainty your death benefit will be paid in accordance with your wishes, as the nomination is much less likely to be successfully challenged by a disgruntled beneficiary.
Need to know
A BDBN is not binding on your super fund’s trustee if it nominates a person ineligible to receive your death benefit under the super system rules. This includes someone who is not a dependant or not your legal personal representative.
For more about death benefits, read SuperGuide articles:
- Who gets your super when you die? A guide to death benefit nominations
- Reversionary pensions: What they are and how they work
- A simple guide to what tax is payable on super death benefits
4. Pay less tax on your investment returns
Super funds work as a tax-effective ‘wrapper’ around your investments and this concessional tax treatment can create valuable tax savings if you earn a higher income.
Income generated by investing outside the super system in your own name is taxed at your normal marginal tax rate. Within the super system, however, income from the same assets is taxed at the lower rate of 15% (and any capital gains at 10% if the assets are owned for at least 12 months).
For more information, read SuperGuide articles Super for beginners: How superannuation is taxed and Income tax: Australian tax brackets and rates (2018/19 and 2019/20).
5. Cheaper insurance cover for members
Since most publicly offered super funds purchase insurance policies for their members in bulk, they can often negotiate a cheaper deal with insurers. In many cases, this makes insurance cover bought through your super fund far more cost-effective than buying it elsewhere.
Paying for insurance through your super fund also makes budgeting easier, as the premiums are automatically deducted from your super account. That way you don’t have to find extra money to pay for the premiums when they are due, although it does eat into your retirement savings.
For more information, read SuperGuide articles:
- Super funds with the lowest fees for life and TPD insurance
- Super funds with the lowest fees for income protection insurance
- How to compare super funds in 7 easy steps
6. Protection against bankruptcy
Holding your retirement savings in a regulated super fund generally means your super benefits are protected from your creditors if you are declared bankrupt.
This protection can be important (particularly for small business owners and professionals) in the event something goes wrong with your finances. Superannuation payments you receive before you go bankrupt, however, are not protected.
Good to know
There are special rules in place to prevent people from deliberately transferring their assets into the super system if they believe they are headed for bankruptcy.
7. Free money from the government
If you make non-concessional (after-tax) contributions into your super account, you could receive a bonus top-up from the federal government, called a co-contribution. Depending on how much money you earn, this co-contribution is tax-free cash paid directly into your super account to supplement your retirement savings. To receive the co-contribution, your super fund must hold your tax file number.
For more information, read SuperGuide article How a government co-contribution can help boost your super savings.
There is more free money on offer if you are eligible for the Low Income Superannuation Tax Offset (LISTO), which was previously called the Low Income Superannuation Contribution. If you’re eligible and earn up to $37,000, this is a payment of up to $500 from the federal government directly into your super account. For more information, read SuperGuide article LISTO (Low Income Superannuation Tax Offset): Refund of super tax for low income earners.
8. Tax-free income in retirement
Once you retire on or after age 60, you are normally eligible to receive your super fund pension or lump sum without paying tax.
Super in retirement offers two key benefits:
- Regular benefit payments without income tax paid as an account-based pension
- No tax payable on the investment earnings or capital gains on the investment assets supporting your retirement phase pension.
Although the investment earnings supporting retirement phase pensions are tax-exempt, since 1 July 2017 retirees can only transfer a maximum of $1.6 million into a tax-free retirement phase account to pay their pension.
For more information, read SuperGuide articles Over age 60? A simple tax guide to accessing your super benefits and Definitive guide to the $1.6 million transfer balance cap.
Good to know
If you receive your retirement phase benefit from an untaxed super fund (generally older public service super funds), some income tax may still be payable.
For more information, read SuperGuide articles Your tax guide to accessing your super under age 60 and Over age 60? A simple tax guide to accessing your super benefits.
9. Continuing insurance cover
Most large super funds allow you to continue your insurance cover even if you switch jobs. This can be valuable if your super fund offers high levels of insurance cover difficult to obtain elsewhere.
Even if you cease being a member of your super fund, many insurers offer you the option of continuing your insurance policy at your own expense by switching to a personal policy. This allows you to obtain the same level of cover without having to produce evidence about your health. For more information, read SuperGuide article Insurance inside super: A definitive guide.
Need to know
If you switch jobs, always check you don’t have multiple insurance cover for the same protection. More than one policy does not mean more than one insurance payout.
10. Ability to invest in bigger assets
By pooling your retirement savings with other members in a large super fund or SMSF, you can invest in assets you wouldn’t be able to access as an individual investor.
With a bigger pot of money to invest, super funds can make investments that would be difficult for individual investors with smaller sums to access, such as taking stakes in a motorway, office tower, or wholesale investment such as corporate bonds.
For more, read SuperGuide articles Super investing for beginners and How investing in infrastructure boosts your super account.
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