Reading time: 4 minutes
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 other 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 income with the lower 15% super contributions tax rate. If your normal marginal income tax rate is 47% (including the Medicare levy), that represents a big saving.
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 $27,500 (in 2021–22). From 1 July 2017 to 30 June 2021, the concessional contributions cap was $25,000 a year.
For super members with less than $500,000 in their super account, if you don’t use the full amount of your concessional contributions cap in a particular year, you can carry forward the unused amount and take advantage of it up to five years later. This gives you the opportunity to contribute more into your account in a single year and claim a bigger tax deduction.
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).
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. Some super funds even offer a non-lapsing BDBN, so you don’t have to worry about renewing your death benefit nomination every few years.
4. Pay less tax on your investment returns
Super funds work as a tax-effective ‘wrapper’ around your investments. This concessional tax treatment for your super account 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). Once you retire, super is generally tax free.
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 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.
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.
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.
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.
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 super pensions are tax exempt, since 1 July 2017 retirees are limited in the amount they can transfer into a tax-free retirement phase account to pay their super pension.
From 1 July 2021, the lifetime limit (called the general Transfer Balance Cap) is $1.7 million. (From 1 July 2017 to 30 June 2021, the general Transfer Balance Cap was $1.6 million.)
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.
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.
