Superannuation: 10 great benefits you may not know about

1. Cut 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 your earnings with the lower 15% super contributions tax rate. For more information, see SuperGuide article Salary sacrifice and super: A guide for employees and employers and Employees can now make tax-deductible super contributions.

Note: Since 1 July 2017, most people aged under 75 can claim a tax deduction for voluntary personal contributions to their super fund, subject to the annual concessional (before-tax) contributions cap. Prior to this date, 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 articles Employees can now make tax deductible super contributions (since July 2017) and Who can now make tax-deductible super contributions?

2. Avoid an insurance medical

Most large super funds automatically offer new members set levels of death and total & permanent disability (TPD) co-contribution insurance cover without needing to undergo a medical examination. This automatic cover can be great for people aged 60 or over, who may not be able to obtain cost-effective cover outside of super due to age, or ill health. This cover can also benefit individuals who face insurance cover exclusions due to pre-existing medical conditions (for example, heart problems or diabetes). For more information, see SuperGuide article Life insurance and super: 10 facts you should know.

You can also check out benefits 5 and 9 later in the article, which explain other often-overlooked insurance benefits you can enjoy with your super benefit.

3. Ensure your money goes where you want

Disgruntled family members challenging the terms of a will is becoming increasingly common, but if you use a binding death benefit nomination (DBN) for your super account, you can help ensure your death benefit goes to the people you intend to receive that benefit, when you die.

A correctly made binding DBN 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. (Binding DBNs in SMSFs are not open to challenge in the Superannuation Complaints Tribunal or the new Australian Financial Complaints Authority.)

Note: A binding DBN is not binding on the super fund’s trustee if it nominates a person ineligible to receive a death benefit under the super system rules, such as someone who is not a dependant or your legal personal representative.

For more information, see SuperGuide articles Death benefits: Is a binding DBN different from a reversionary pension? and Superannuation death benefits: Beware the dastardly death tax, and retirement cap and New authority (AFCA) for super complaints now open for business.

4. Pay less tax on your investments

Super funds work as a tax-effective ‘wrapper’ around your investments. Income generated by investing outside the super system in your own name in assets like shares or property is taxed at your normal marginal tax rate. Within the super system, however, income from those same assets is generally taxed at a lower rate of 15% and capital gains at the rate of 10% provided the assets are owned for at least 12 months.

This concessional tax treatment can create valuable tax savings for those on higher incomes. For example, if you are an investor paying the top marginal tax rate of 45% plus the 2% Medicare Levy (for the 2018/2019 year), then you will be paying tax on your investment earnings at this rate. However, if those same investments are in a super fund, you will only pay 15% tax on your investment earnings. For more information, see SuperGuide articles Four must-knows about super’s tax rules and Australian income tax rates for 2018/2019 and 2017/2018 years (and earlier years).

5. Cheaper insurance cover, in many cases

As most publicly offered super funds purchase insurance policies in bulk, they can 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 insurance premiums when they are due, however, it does eat into your retirement savings. For more information, see SuperGuide articles Comparing super funds: Top 20 cheapest funds for life insurance, Comparing super funds: Top 20 cheapest funds for income protection insurance and Fund choice: Comparing super funds in 8 steps.

You can also check out benefits 1 and 9, which explain other often-overlooked insurance benefits you can enjoy with your super benefit.

6. Protect 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 received before you go bankrupt, however, are not protected.

Note: There are special rules in place to prevent people from deliberately transferring their assets into the super system if they believe they are heading for bankruptcy.

7. Free money from the government

If you make non-concessional (after-tax) contributions into your super fund 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 into your super account to supplement your own retirement savings. Note that your super fund must have your tax file number. For more information on super co-contributions, see SuperGuide article Cashing in on the co-contribution rules (2018/2019 year).

On your employer’s super contributions, or your own concessional contributions, if you’re eligible and earn up to $37,000, you may get the Low Income Superannuation Tax Offset (LISTO), which was previously called the Low Income Superannuation Contribution (LISC) before 1 July 2017. This is a payment of up to $500 from the federal government into your super account. For more information about the LISTO, see SuperGuide article LISTO: Super tax refund for lower-income earners.

8. Tax-free income in retirement

Once you retire on or after the age of 60, you could be eligible to receive a super fund pension, or a super lump sum, and not pay any tax.

Super in retirement offers two key tax benefits. One, regular benefit payments, paid from an account-based retirement phase pension from a large super fund, or paid from an SMSF, does not incur income tax. Two, there is no tax payable on the investment earnings or capital gains on the assets supporting the retirement phase pension.

Note: A tax-free retirement may not apply for Australians receiving benefits from untaxed super funds (older public service super funds), where some income tax is still payable. For more information on the tax treatment of super benefit payments, see SuperGuide articles Fund choice: Comparing super funds in 8 steps and Fund choice: Comparing super funds in 8 steps.

Although the earnings on assets supporting retirement phase super pensions are tax-exempt, since 1 July 2017 retirees can only transfer a maximum of $1.6 million (transfer balance cap) into a tax-free retirement phase account, to pay a pension. For more information, see SuperGuide articles Super for beginners, part 16: Tax-free twice when you retire and Retirement phase: A super guide to the $1.6 million transfer balance cap.

9. Keep your insurance cover

Most large super funds allow you to continue your insurance cover even if you leave your current employer, which can be great if the super fund offers high levels of insurance cover that are difficult to obtain elsewhere. People who would have difficulty obtaining similar levels of insurance protection can find this a significant benefit.

Even if you cease membership of your super fund, many insurers will offer you the option of continuing your insurance cover at your own expense by taking out a personal policy. This option allows you to obtain the same level of cover with the super fund’s insurer without having to produce evidence about the condition of your health. For more information, see SuperGuide article Four reasons to buy insurance inside your super fund.

Note: If you move jobs, always check that you don’t have multiple insurance cover for the same protection. More than one policy, does not mean more than one insurance payout.

You can also check out benefits 1 and 5, which explain other often-overlooked insurance benefits associated with your super benefit.

10. Invest in bigger assets

By pooling your retirement savings with other super fund members in a large super fund, you can take advantage of investments you otherwise wouldn’t be able to access as an individual.

Likewise, a SMSF trustee can access larger investment opportunities by choosing to invest some super money in managed funds, investing in asset classes or investments that may be difficult to access as an individual investor, such as global property.

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 information, see SuperGuide articles Superannuation investing: How does it all work? and Infrastructure assets: why your super fund loves it when you fly.