What is superannuation investing?
Superannuation investing entails two elements of investment concept: firstly, it is important to recognise that superannuation is not of itself an investment, as a structure under which investments are made; secondly, superannuation investing applies all of the usual skills required for investing of any type and includes:
- identification of goals (and the timeframe for their achievement);
- assessment of the risk aversion profile of the superannuation fund member (the investor); but can also entail
- insurance protection;
- estate planning; and
- retirement planning strategies.
Should I invest in superannuation?
Superannuation investing is a tax effective way of accumulating wealth for your retirement. The Government provides tax concessions to encourage the utilisation of superannuation to provide financial security in retirement. Because of these tax concessions, the Government restricts how much can be contributed (and withdrawal conditions – formally called ‘conditions of release’), resulting in concessional rates of tax being applied. The Government also regulates when you can take your benefits out of superannuation.
How much can I put into super?
Broadly, there are two types of contributions – and the amount able to be contributed under each type is subject to regulatory ‘caps’. Particular provisions apply caps to making contributions to superannuation at various ages: a summary of those provisions is at this ATO website page. (Whilst this page is within the self-managed superannuation sub-section of the Superannuation section of the ATO site, the definitions and the caps are applicable to all superannuation accounts.)
Non-concessional contributions are contributions made with your own money for which you do not claim a tax deduction: usually referred to as ‘after-tax’ contributions. (The article linked has further information about caps applying to non-concessional contributions; and strategies available top optomise benefits from them.)
Concessional contributions are either:
a) compulsory contributions made by your employer (under superannuation guarantee legislation and where relevant, by way of salary sacrifice you enter into with the employer); or,
b) ‘personal’ contributions made by you and for which you intend to claim a tax deduction.
Concessional contributions to superannuation up to 30 June 2014 were limited to $25,000 annually: since that date the amount has been indexed to $30,000. If you are over 50 you will be able to make concessional contributions of up to $35,000 in each financial year. (Before contributing significant amounts to superannuation, you should check with your financial planner – or the relevant ATO website page: Contribution Caps.)
Exceptions to the contribution caps
If you sell a business asset and apply the small business concessions, there are certain rules which can allow you to contribute up to $500,000 to super – in addition to the normal contribution caps.
Proceeds of any amount from a settlement for an injury resulting in permanent disablement and the government co contribution also do not count towards the contribution caps.
Are my payments into superannuation taxed?
Personal concessional contributions and employer contributions are taxed at a rate of 15 per cent when received by the superannuation fund. This amount is deducted by the super fund from your account balance.
‘Non-concessional contributions’, which are contributions for which no tax deduction has been claimed, are not subject to the 15 per cent contributions tax.
Can I get the Government co-contribution?
To encourage the use of superannuation as a retirement planning vehicle, the Government introduced a ‘co-contribution’ scheme. Under this arrangement, eligible people who make a personal non-concessional contribution to superannuation will have that contribution matched by the Government. The co-contribution benefit has been altered several times since 2007: to check the most recent ‘rules’ applicable, a search of the ATO website will provide a guide.
You will be eligible to receive any applicable co-contribution if:
- You make a non-concessional superannuation contribution to a complying fund,
- Your total income (assessable income plus reportable fringe benefits) is less than a pre-determined amount for the relevant financial year,
- 10 per cent or more of your total income is from employment or from carrying on a business,
- You are not a temporary resident at any time during the year, and
- You are under 71 years old at the end of the financial year.
For the self employed, income will be calculated as assessable income and reportable fringe benefits less business expenses. The standard income threshold rules will apply.
You should talk to your Continuum Financial Planners’ adviser to determine if you are eligible for the co-contribution: we will also help you to determine the most appropriate amount for you to contribute to optimise this benefit.
How are the returns from superannuation investing taxed?
Investment earnings within the fund are taxed at a maximum rate of 15 per cent, which can be lowered by imputation credits, or by the derivation of tax-free/ tax-deferred income. When a superannuation fund pays you a pension or annuity, the assets of the fund underlying these benefits have their investment earnings exempted from tax within the fund.
Can I get money out of my super?
A superannuation benefit is a payment you receive from the fund after the occurrence of some specified event, such as retirement, resignation, retrenchment, disablement or death. Depending on the fund, benefits can be paid as a lump sum or as a superannuation pension (a regular income stream).
As superannuation is all about saving money until retirement at or after age 65, some benefits cannot be withdrawn until then: these are called preserved benefits. Unrestricted non-preserved benefits can be taken out at any time after attaining the age of 55 years. Restricted non-preserved benefits may be taken out before the retirement age condition of release is attained, subject to the member having ceased work.
Lump Sum Superannuation Benefits
What is a lump sum Superannuation Benefit?
A lump sum superannuation benefit is simply a payment made to you from a superannuation fund or approved deposit fund as a lump sum.
From 1 July 2007, lump sum drawdowns and pension payments (from taxed superannuation funds) are tax free to individuals over age 60. Individuals that withdraw their benefits before age 60 as a lump sum will still be taxed, but at a lower rate.
The lump sum payment will be divided into two components –a tax free component and a taxable component, as follows:
|Old component||New component|
|Pre-1 July 1983||Tax free|
|Post-June 1994 invalidity||Tax free|
|CGT exempt||Tax free|
|Post- June 1983||Taxable|
|Non Qualifying component||Taxable|
The tax free component is not taxed on withdrawal. The taxable component is taxed depending on your age as follows:
|Aged 55 – 59||Up to $185,000||0%|
|Over 60||Any amount||0%|
How can I put money into Superannuation?
Employer Sponsored funds
Employees, including self-employed people working for their own company, can contribute to superannuation through a fund to which their employer already makes contributions on their behalf under the superannuation guarantee provisions. The eligibility criteria above still apply – and the employer in this situation could be a SME, large corporate, government or semi-government organisation: all of which offer different opportunities as to superannuation benefit design. These contributions, comprising both compulsory superannuation guarantee amounts and salary sacrificed amounts are paid to the fund trustee as employer contributions.
Personal superannuation accounts (and superannuation fund ‘choice’)
Individuals are able to supplement employer-sponsored superannuation with separate personal accounts should they so wish. With choice of superannuation fund now legislated, this is less popular than used to be the case: employees are now able to direct their employer (in most cases) as to which fund they want their superannuation guarantee amounts to be paid. This provides for greater efficiency in the management of your superannuation affairs – and should result in lower costs where only one fund is maintained.
This continues to be a popular way for people to accumulate their superannuation assets: it provides for greater portability if moving from job to job (contract to contract) and you are self-employed. Whilst the management of a SMSF can be onerous, the flexibility in the way investments can be structured is attractive to many: direct share investments and direct property investments can be managed alongside traditional managed fund assets and bank/ commercial deposits.
SMSFs are also the only superannuation structure under which direct property can be held: and further, the only such structure to facilitate borrowing to acquire such property.
Do super funds provide insurance protection for their members?
Some insurance policies can be taken out under a superannuation structure operated by the insurance company providing the cover. Payment of the insurance premiums in these circumstances may also be a legitimate contribution to superannuation as provided under the guidelines outlined above in this article.
Insurance for Life, Total and Permanent Disability (TPD) and Income Protection/ Salary Continuance cover can also be held under traditional superannuation account structures, but the industry is still evolving products to provide the strategic protection members are seeking to have through such policy types.
Can I get information and advice about my super?
If you are not being provided with advice about the way your superannuation account is being invested, or in the way that your superannuation fund is being managed – and especially if these important elements are not being provided in the context of holistic advice regarding your wealth accumulation and wealth protection you should speak to one of Continuum Financial Planners’ experienced advisers. Our advisers work to the mantra that – ‘we listen, we understand; and we have solutions’ to your financial needs, goals and objectives.
To ensure your superannuation is being managed with you in mind, contact us for a full review of your personal circumstances and financial needs, goals and objectives.
(Acknowledgement: we thank Securitor Financial Group for the access to the article from their ‘Additional Information’ library from which the bulk of the above material was extracted.)
(This article was originally posted in June 2012: this is the second iteration and update, published November 2014.Reference to the ATO links in this article will keep you informed of current applicable caps and limits. Our most recent update of those links was made in June 2021.)