4 Things You Need to Know About Superannuation

There are a great many misconceptions about superannuation; such as the fact that the 'government' or the 'super fund' owns your superannuation until you retire – which simply isn't the case.

Superannuation is an amount of your money that you have invested in a fund; which is ether being managed by a fund manager on your behalf or managed by you through a self managed superannuation fund (SMSF).

Contributions

Your employer is required to pay 11.5% (from 1 July 2024) of your salary into your nominated superannuation fund, which it and must do at least on a quarterly basis. It will then increase by a further 0.5% on 1 July 2025 to reach 12%.

Contributions that are paid by your employer are known as 'Superannuation Guarantee' and are contributed as pre-tax dollars, meaning that you don't pay tax on them at your personal tax rate.  Once contributions enter superannuation they are taxed at a flat of 15% making superannuation a tax effective retirement savings account (especially if the marginal tax rate is higher than 15%).

High income earners (those with income over $250,000) will be liable for an additional 15% tax on their superannuation guarantee contributions. However, as the top marginal tax rate is 47% (including medicare levy) this is still significantly less their marginal tax rate.

You are allowed to contribute up to $27,500 per year in pre-tax contributions (for the 2022 through to the 2024 income years). For the 2025 year this will increase to $30,000. This is referred to as the concessional contributions cap. Pre-tax contributions can include a combination of employer superannuation guarantee and salary sacrifice amounts as well as amounts you have contributed yourself for which you have claimed a tax deduction. Salary sacrifice is where you enter into an arrangement to contribute extra towards your superannuation (over and above the superannuation guarantee) from your pre-tax income.

If your total superannuation balance is less than $500,000 you may be able to contribute more than the annual concessional cap ($30,000 for the 2025 year) in pre-tax contributions to your superannuation fund, if you did not use the full amount of your cap in earlier years. Unused concessional contribution cap amounts can be carried forward from the 2019 year onwards for up to 5 years.

Whether or not you should contribute extra into your superannuation will very much depend on your personal circumstances and may vary from person to person depending on their goals.

Super Investments

The money that is contributed to your superannuation account is usually invested in a range of different assets or asset classes.

When you choose a super fund that is to be managed on your behalf, unless you specifically pick your portfolio, you will most likely be put into a 'default' portfolio which may have a name such as 'balanced' or 'conservative'. While each super fund can vary in terms of what they call their portfolios, it is up to you (within reason) as to how you would like your superannuation to be invested and how much risk you are willing to take.

Usually a mixed portfolio will include assets such as Australian and international shares, fixed interest products such as bonds, managed investments such as infrastructure funds or real estate investment trusts and a portion may be in cash. Generally speaking, your super fund may provide some guidance on the risk associated with different portfolios by giving them names such as 'conservative', 'balanced' or 'growth'. There may also be specialist portfolios that focus on things such as ethical investments. Alternatively, some funds may have 'DIY' options where you can select particular types of investments and how much of your money is invested into each to essentially design a customised portfolio.

The superannuation investments portfolio most suitable for you will depend on a variety of factors such as the time before you intend to retirement and your risk profile (i.e. how much risk you are prepared to take). Your portfolio will impact what your investment returns will be, so it is important that you choose what is right for you.

Accessing Superannuation through Retirement

The most important thing to remember with superannuation is that it is there for your retirement and therefore any decisions made about your superannuation should be made on the basis of this consideration.

To access your superannuation, you must reach what is known as 'preservation age'; which is your between 55 and 60 years of age depending on when you were born. Upon reaching preservation age, you may access your superannuation so long as you retire permanently. The exception to retiring permanently is if you reach age 65, at which stage you can also access your superannuation.

Another alternative, if you reach preservation, and are not yet 65 and want to continue working, you may enter into a 'Transition to Retirement' strategy. Also known as a 'TTR', this strategy allows you to access up to 10% of your super balance while you are still working.

When you do meet the requirements to access your superannuation you have the choice to receive it as either a lump sum or as a pension or a mix of the two. There are a number of rules and tax implications for the above options and it is best to seek personalised advice, based on your personal circumstances, as the best course of action will vary from person to person.

Death Benefits

Another topic worth covering is what happens to your superannuation, and any associated insurances, in the event that you pass away.

If you have not yet done so, it is very important to ensure that you have a death nomination in place. If there is no death nomination in place the superannuation fund trustee will decide who gets your superannuation and associated insurances (i.e. children, spouse, dependants etc.).

There are two types of nomination; binding and non-binding. As the name suggests, a binding nomination forces the superannuation fund trustee to execute on your wishes, whereas a non-binding nomination offers guidance only and the trustee ultimately has the final say on where they consider your superannuation balance should be distributed.

General Advice Warning

This information may be regarded as general advice. That is, your personal objectives, needs or financial situations were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of any general advice provided as part of this information, having regard to your own objectives, financial situation and needs.