SUPERANNUATION
Superannuation (“super” for short) is your retirement savings. As soon as you are employed, a portion of your earnings will be funded into your super account. Therefore, the more money you fund into your super, the bigger your pension will be. Your pension from your super will only be released once you reach retirement age.
Qualifications for Superannuation Guarantee (SG)
The Superannuation Guarantee (SG) is the monthly contribution paid by your employer to your super fund. Here are the eligibility requirements for it:
- You are at least 18 years old;
- Legally employed; and
- Your monthly earnings are at least $450.
You do not have to worry about your eligibility whether you are working full-time, part-time, or temporarily. But if you are under 18 years old, you must be earning more than $450 a month and working for 30 hours every week.
If you are a high-income earner, your annual salary is capped at $235,680.
How does Super work?
To understand how Super works is to look at it in two phases: the accumulation phase and the retirement phase.
The accumulation phase is the period when your employer is paying 10% of your total income and extra earnings to your chosen super account. It is also the period where you are personally contributing to it from your take-home pay if you choose to do so. During this phase, your super fund will steadily accumulate interest and grow. Like trust funds, a trustee will be managing and investing your super fund until it is ready to be released.
The retirement phase is where you start a super income stream. You can now withdraw your tax-free super account. This phase is restricted to your preservation age which is around 55 to 60 but will be standardised to 60 by 2025.
Choosing your Super
While there are many super funds being offered today, there are five basic funds that you need to look into.
This includes the industry fund which is membership-based, meaning that profits are distributed to the members instead of its shareholders. Some industry funds are open to everyone, while some require your employment in a specific industry. Retail funds are open to everyone and is managed by financial institutions. Corporate funds are only open to the employees of the said company. If you’re a government employee, public sector funds might be the one for you. Lastly, there are self-managed super funds that can be managed by up to four individuals. This is recommended if you are young and you have many financial assets.
However, if you are unable to decide on a super fund, your employer will be putting you in a default fund of their choice which usually has simple features and low fees.
You need to be smart when choosing your super fund because each super fund has different perks and offers. Take note that your super fund will invest your money for you, so take the time to explore their investment options. Companies offering to handle your super fund will introduce you to investment opportunities where you will see the risk-return profiles of your investments. Some companies will also offer direct investment through shares and even ethical or sustainable options.
Making a Contribution
Deposits in your super fund are called contributions and there are two types: concessional contributions and non-concessional contributions. Concessional contributions are based on your pre-tax income. It has a contributions tax of 15%, which significantly lowers the marginal tax rate. On the other hand, non-concessional contributions are not taxed. This is applicable for those earning at most $110,000 a year.
Advantages of Super
- Flexibility: There is a wide range of options and strategies available to grow your Super.
- Opportunity: Super is structured in a way that will help you grow your own money, even if you are a low to middle-income earner. In some cases, even the government can be your co-contributor.
- Tax reduction: Concessional contributions can help reduce the amount of tax you are paying.
- No age limit: Even when you reach your retirement age and are still working, you are still eligible for a super fund and grow your money.
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