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Super offers considerable tax advantages as a form of saving if your marginal tax rate is above the superannuation contributions tax rate of 15 per cent.
If you are earning more income than you need at present, or are in a high marginal tax bracket, you can obtain a tax advantage by sacrificing a portion of your salary into super. It means you forgo pay in your hand now for a higher retirement benefit later.
So instead of paying your marginal tax rate, you can sacrifice pay now and pay tax at the rate of only 15 per cent on that sacrificed amount. Your employer pays the sacrificed portion of your pay into your chosen fund and your take-home pay drops accordingly.
However, you should remember that super locks your money up until you are at least 55 years of age. Sacrificed pay is similarly locked up. You can only get access to your employer-funded super money before you reach preservation age in exceptional and very restricted circumstances.
Warning – Your employer may drop its SG contributions to your super fund based on the new lower salary. Therefore, you should enter into a written agreement with your employer before proceeding. Should you have doubts, seek specific advice
Superannuation balances are preserved, which means they must remain in the superannuation system and be accessed only in retirement.
While an individual can retire at any time, they usually cannot access their superannuation balances until they have retired and reached their preservation age. An individual’s preservation age depends on when they were born.
|Date of birth||Preservation age|
|Before July 1, 1960||55|
|July 1, 1960 – June 30, 1961||56|
|July 1, 1961 – June 30, 1962||57|
|July 1, 1962 – June 30, 1963||58|
|July 1, 1963 – June 30, 1964||59|
|After June 30, 1964||60|
Super is your deferred pay invested for your retirement and therefore early access is highly restricted and difficult.
You can access what are called preserved lump sum benefits – the bulk of your super – when you reach preservation age on the condition that you retire.
If you have reached preservation age and are still working you can also sacrifice pay into your super fund and draw down an income stream from your super to top up your reduced take-home pay. This may provide a tax advantage.
A preserved benefit refers to benefits built up after 1983 from employer contributions and any of your own contributions since 1999.
If you face an emergency, you may be able to access up to $10,000 of lump sum preserved benefits before preservation age. However, you must first satisfy a strict test.
To satisfy this test you must be in receipt of a Commonwealth income support payment for at least a continuous 26-week period.
You must also satisfy the trustee of the fund that you are unable to meet reasonable living expenses. You will need a letter confirming this from Centrelink or the Department of Veterans’ Affairs.
There are also compassionate grounds for early release, such as needing funds to pay for home modifications if you suffer from a terminal illness or disability. A considerable amount of documentation is required.
Applications for release on compassionate grounds must be referred to the Australian Prudential Regulation Authority. Promoters who promise early access to super should be shunned as you are likely to have to pay marginal tax on the withdrawal, as well as penalties if you enter into such a scheme.
In a small minority of cases, some super can be legally accessed earlier. Ask your fund about these.
In today’s work environment, where many of us change jobs frequently, it is easy to lose track of your accumulated super simply because you are too busy.
This is particularly the case if several employers have paid super contributions on your behalf into different funds and you have not kept track of where the contributions have gone. If you work casually, part time, move around a lot, change addresses and don’t keep all your super fund statements, it can be difficult to keep a handle on where your super money is.
The amounts of lost super are not small: a Government press release dated 5 January 2009 stated that as at 30 June 2008 the amount of lost super was $12.9 billion. Some of that might be yours.
If you think you are missing some of your super accumulations, phone the ATO’s SuperSeeker on 13 28 65, or visit the ‘super’ page on the ATO website at www.ato.gov.au. The SuperSeeker tool allows you to search the lost members’ register, which holds details of lost super accounts, including the name of the super fund that reported the lost account. With either option, you will need to provide your name, date of birth and tax file number.
Once you have the name of your lost fund/s make direct contact with it. At this point, reclaiming your super is similar to organising a transfer to consolidate your accounts. You can also ask your super fund to conduct an inquiry using SuperMatch. The maximum time period in which this transfer must occur is 30 days.
Superannuation funds may also transfer small and inactive super accounts to an eligible rollover fund (ERF). With more than 1.8 million accounts, the largest of these special types of funds is AUSfund, Australia’s Unclaimed Super Fund.
You can check if they have any of your super by undertaking a super search. You will need to provide your name and date of birth. If they have super for you, they will transfer it to your fund of choice – at no charge.
Combining super accounts
If you have little bits of super scattered across different accounts with different funds then it’s generally a good idea to combine all your accounts. Combining small or inactive accounts:
You can also search for other unclaimed money through the Australian Securities and Investments Commission website. All other unclaimed monies (bank, insurance, shares etc) can be checked on the Unclaimed Money Register in each state or territory. All have online search facilities.
Super is for your retirement but it also provides low-cost and tax-effective life insurance and permanent disability cover in the event of untimely death or disablement before you retire. Super funds also generally offer income protection cover.
How do I know if my super fund offers insurance?
Insurance within a superannuation fund provides a number of important benefits for members and forms a key part of the delivery of financial security for members and their dependents. Due to their purchasing power and economies of scale, funds are able to purchase insurance cover in the market place with premium rates, service levels, terms and conditions that are generally superior to what individual members can purchase in their own right. Because most funds can secure a level of Automatic Acceptance Levels under a group contract, members can generally be provided with a minimum level of insurance cover regardless of their medical history or pre-existing conditions.
Types of insurance available
Source – Industry Super Network