Essential facts about superannuation
What do you get from super?
Super is an excellent way to save money for your retirement because of the tax concessions and other government benefits.
Super funds may also offer additional benefits, such as life insurance cover, and total and permanent disability insurance (insurance if you become disable or sick for an extended period of time).
Who can join a super fund?
In most cases, you join a fund as soon as you're employed (or at least within three months of being employed), because by law your employer must pay contributions into a fund on your behalf if you are eligible for compulsory contributions.
Generally, to be eligible you must be under 70 years of age, working on a full-time, part-time or casual basis and paid over $450 (before tax) per calendar month. If you are under 18 you have to meet the additional requirement of working more than 30 hours a week to be eligible.
If you're self-employed, you can decide if you want to join and contribute to a fund. Most self-employed people can claim a full tax deduction for contributions they make to their super until age 75.
While most people with super are employed others can also become members of a super fund. For example:
- If you are not currently employed, or never have been employed, you can still join and contribute to a fund up to age 65. Special rules relating to employment apply to contributions you make when you are 65 and over.
- If you're not working or have a low income, your spouse can contribute for you. (see Contributing for your spouse)
Immediately you join a fund, make sure you give them your Tax File Number so you don't pay unnecessary tax or miss out on other benefits.
How much gets paid into your super?
If you are eligible for compulsory contributions, your employer must pay a minimum of your ‘ordinary time earnings’ into your super account each quarter. This means 9% of the amount you earn for your ordinary hours of work. These payments are called 'super guarantee' payments. For example, if your ordinary time earnings for the year are $50,000 your employer must pay $4,500 into your super account.
Visit the Australian Taxation Office (ATO) website for more information on ordinary time earnings.
Your employer or you may pay extra money into super at any time, though tax concessions may not apply to very high contributions (there's an annual limit to how much you can contribute while taking advantage of tax concessions). If you’re self-employed or not employed, you decide how much to pay in. Once you reach age 65 you need to meet a work or 'gainful employment' test to contribute, and contributions are generally not allowed after you reach age 75. See Your own after-tax contributions.
What type of fund can you join?
Fund rules control who may join. There are four basic types of funds.
| Corporate funds | Generally only open to people working for a particular employer or corporation. Sometimes ex-employees or relatives of an employee can also join the fund. (Employers may run their own plan or run it through investment managers or a master trust.) |
| Public sector funds | Generally open to Commonwealth and State Government employees. |
| Industry funds | Sometimes open to everyone. Otherwise you can join if you work in a particular industry or under a particular industrial award and your employer signs up with the fund. |
| Retail funds | Open to everyone. They are run by financial institutions. |
Self-managed super funds
(also called SMSFs) | Open only to you and up to three other people (who cannot be your employees). |
In order to obtain special concessions you must join a 'complying' super fund that meets legal standards. Generally the types of fund listed above are complying super funds. There is a free register of complying funds called 'Super Fund Lookup' at www.abn.business.gov.au if you want to check.
Otherwise, super can be paid into a 'retirement savings account', a special deposit account with banks or other deposit-taking institutions. (For amounts of $10,000 or more, you may wish to consider other super arrangements that may give a greater return over the long term.)
Who controls your super?
Trustees run your fund. By law, they must act honestly and prudently, and make decisions in the best interests of all members. Trustees have to demonstrate to the regulator that they are fit and proper persons to do this.
Trustees hold office under the fund's rules. Often, trustees hire professionals to invest the fund's money and to look after fund assets, membership records and other tasks. Trustees still remain responsible, and if they fail in their duties, courts or government agencies can remove them.
Who regulates the funds?
Three government agencies regulate and enforce legal standards to protect you and your benefits:
- ASIC regulates what funds tell you and how they abide by company law
- the Australian Prudential Regulation Authority (APRA) regulates how funds operate (except self-managed ones) so that your fund(s) can meet their obligations to you
- the ATO regulates self-managed funds, employer contributions (the superannuation guarantee), co-contributions and super tax rules.
Government agencies don't guarantee your fund's capital or investment earnings.
More about superannuation
FIDO Website: Printed 03/17/2010
