Your five minute super health check
It’s never too early to start planning for your retirement, so here’s some useful tips to boost the health of your super today for a more comfortable lifestyle in the future.
Here’s how to be the boss of your super in three simple steps.
If you’re working full-time or part-time for an employer, they generally have to make regular Super Guarantee (SG) payments into your super account. But there are some exceptions, like if you’re:
SG contributions are calculated as 9.5% of your Ordinary Time Earnings (OTE). This includes loadings, commissions, allowances and most bonuses, but usually doesn’t include overtime pay. Your employer also has to keep making SG payments even when you’re on sick leave, annual leave or long-service leave – but not if you take time off for paid parental leave.
You can use this handy calculator to work out how much super you’re entitled to.
With the rise of the gig economy, more Australians are picking up some extra cash for companies such as Uber and Airtasker. If you’re one of them, it’s important to know whether you’re considered to be an employee for SG purposes. While contractors generally aren’t employees, you may be treated as an employee and be entitled to receive SG payments if your contract involves you being paid principally for your labour.
And if you’re self-employed (for instance, if you’re a sole trader), you won’t receive employer contributions either – it’s up to you to pay your own super.
When you start working for a new employer, they need to give you a Superannuation (super) standard choice form. This lets your employer know which super fund to pay your SG contributions into. All you have to do is provide your fund details and account number.
If you don’t nominate a super fund, your employer will pay your SG contributions into their default fund. This means you could end up with multiple super accounts each time you change jobs – each with their own fees attached.
By law, your employer has to start paying SG contributions into your chosen account on a quarterly basis – and they must start paying any amounts that are due within two months of receiving your completed standard choice form. If you think your employer isn’t making these payments – or they’re paying you the wrong amount – here’s what you can do:
Employer SG contributions play a vital role in building up your super savings throughout your working life. But they’re not the only way to grow your nest egg – you can also generally make extra voluntary super contributions at any time.
You may be able to set up a before-tax contribution from your salary, known as a salary sacrifice arrangement, with your employer. This means authorising them to take out a fixed amount or percentage of your before-tax income from every pay, which they then deposit straight into your super. But first, you should speak to your employer about how this arrangement would work for your employment situation.
Alternatively, you can use your own money to make voluntary contributions. In this case, you may be entitled to claim an income tax deduction on your contributions.
An advantage of salary sacrificing or making personal tax-deductible contributions is that your contributions will be taxed at just 15% in most cases, instead of your usual marginal income tax rate. However, it’s important to remember that the combined total of your SG payments, salary sacrificed amounts and your personal tax-deductible contributions can’t exceed $25,000 in a financial year or extra tax will apply.
What if you’re self-employed? You don’t have to pay yourself super, but it’s still a valuable way to save for your retirement. And although you can’t salary sacrifice if you’re self-employed, you can still make personal tax-deductible contributions.
Like other workers, your before-tax personal contributions will generally be taxed at 15% – and the same $25,000 cap applies if you’re self-employed and you claim a tax deduction for personal contributions.
Regardless of your employment status, you may be able to contribute money from your after-tax super contributions of up to $100,000 (or up to $300,000 during a three-year period, if you met the requirements of the ‘bring-forward’ rule).
Keep in mind that a ‘transfer balance cap’ was introduced from 1 July 2017 limiting the amount that could be transferred to a retirement phase income stream, such as an account-based pension, to $1.6 million. The balances of existing retirement phase income streams held at 30 June 2017, and the starting values of any commenced since then, counts towards this.
Any amounts over $1.6 million need to be transferred back to an accumulation phase super account or withdrawn from super. Otherwise a penalty tax will be applied, effectively removing the tax advantage of leaving the funds in the pension phase and in some cases providing further penalty.
Also from 1 July 2017, if you have a total super balance of $1.6m or more just prior to the start of a financial year, your after tax contributions cap will reduce to Nil. The amount you can contribute under the bring forward rule will also be reduced once your total super balance is $1.4 million or more.
Your super is held (or preserved) in your super account generally until you reach your ‘preservation age’ and permanently retire. Your preservation age is between 55 and 60 (depending on your date of birth), and is age 60 for everyone born after 1 July 1964.
Alternatively, you can also fully access your super if you cease gainful employment after reaching age 60, or reach age 65 (regardless of whether or not you’re still working).
If you reach your preservation age but don’t retire, you can also commence a limited ‘transition to retirement’ income stream through your super.
If you want to find out more about how super works, you can call us on 13 13 36, Monday to Friday between, 8am to 7pm Sydney time or speak to a financial adviser.