With the aging of Australia's population, more and more Australians are looking forward to their retirement, with travel, relaxation and spending more time doing the things they love at the forefront of their minds.
Whilst the Age Pension is available to those who are of the qualifying age or older, which is currently 66 and is incrementally being raised to 67 by 1 July 2023, most Australians do not plan to live solely off of the Age Pension. This is where superannuation plays a major role.
What is superannuation?
Superannuation is fundamentally a scheme designed to allow people to save for their retirement. It is arguably the easiest way to save for retirement, and possibly the most tax-effective way to do so.
Most Australian workers have an active superannuation fund. This is not necessarily the case for all workers, including many self-employed workers or workers who earn less than $450.00 gross each month.
Are all employers required to pay their employee's superannuation?
The law mandates that employers are to make a contribution to their employees' chosen superannuation funds. This contribution is called a Superannuation Guarantee contribution.
There are exceptions, however. Employers do not have to make a contribution to their employee's nominated superannuation fund if:
- The employee is over 18 years and is earning less than $450.00 gross per month; or
- The employee is under 18 years and is earning less than $450.00 gross per month and works less than 30 hours per week.
- The employee is a private domestic worker (for example, a nanny) and is earning less than $450.00 gross per month and works less than 30 hours per week.
What is the current superannuation rate?
The present rate for Superannuation Guarantee contributions is 9.5% of the employee’s pre-tax salary. This means that presently, an employee earning a salary of $50,000.00 per year should be paid $4,750.00 per year by way of superannuation contributions.
Are you still eligible to receive the Age Pension if you have a superannuation fund?
Over time, the money held in superannuation funds will continue to accumulate, meaning there are significant savings at the date of retirement. If the final amount of superannuation is less than a prescribed amount, then the individual may still be eligible to receive the Age Pension (either in full or partial) in addition to receiving the monies held in their superannuation fund.
Some employees also choose to make additional contributions to their superannuation fund during their working life. This not only increases the amount in the superannuation fund at the time of retirement, but it also has tax benefits.
Salary sacrificing into your superannuation
Employees who ‘sacrifice’ some of their salary into their superannuation fund will reduce their liability in relation to the amount of income tax they pay. This can be complicated, and if you’re considering ‘salary sacrificing’ into your superannuation fund you should seek independent financial advice.
Insurance included in superannuation
Whilst the primary purpose of superannuation is to provide a long-term savings plan for retirement, many policies and funds include additional benefits to the policy-holder, including different kinds of insurance. This can include:
- Life insurance;
- Total and Permanent Disability (TPD) insurance;
- Income Protection insurance.
It is important to note that any insurance benefit paid does not actually come out of your own superannuation fund. The applicable benefit is generally a separate payout, unrelated to the funds within your superannuation fund.
Andersons Solicitors can provide assistance with respect to obtaining benefits from these insurances. We will discuss each kind of insurance in future blog posts.