Your retirement savings
Super is an initiative that the Australian government has in place to help you build wealth and save for your retirement. The money that goes towards your super is part of our total pay, only you can't touch it until you have reached the retirement age set by the government.
By restricting access to your super funds, you're encouraged to remain financially sufficient until this point in time, at the very least. The aim of super is to provide you with an income, a bit like your regular pay when you were working, that you can live on once you've retired. It's actually a pretty nifty system and there are lots of different ways you can use it to build your wealth while you're still working.
Have you actually considered just how important your super is going to be in determining your retirement lifestyle when the time comes? Even if you are only in your thirties, thinking ahead to retirement is important. The reality is, the older you get the less choice you have in changing your retirement fortunes. Consequently it is never too early to start planning ahead.
This is not the place to debate what government assistance will be around in the future, or if indeed there will even be any. However it is evident most Australians won't be able to rely on the Age Pension, or government payments alone, to fund the lifestyle they have dreamt of in retirement.
Growing your super
1. Concessional Contributions
Your employer is obligated to pay 9.5 per cent of your 'ordinary times earnings', which you might be more familiar with as your base salary, into your nominated super fund. This super payment is referred to as Super Guarantee or a concessional contribution. Concessional in this case really means favourable tax treatment. When these funds are received in super they are only taxed at only 15 per cent as opposed to your marginal tax rate, which could be greater than 30 per cent.
You can also salary sacrifice an extra amount into your super. These additional funds will be taxed at the same rate as your minimum employer contributions.
It's your employer's responsibility to pay your super at least every three months. If you are unsure if this is happening for you, check your payslip and compare it with your super statement to make sure you are receiving your full pay.
Let's have a look at how it works. Ben's salary is $65,000, plus super. Each year, Ben's employer will pay $6,175 (=$65,000 x 0.095) into his super as his super guarantee. This $6,175 will be reduced by the 15% tax that must be paid, leaving Ben with $5,248 to be invested.
2. Non-concessional contributions
Voluntary contributions to your super using money that you have already paid tax on are referred to as non-concessional contributions or sometimes after-tax contributions. No tax needs to be paid on these funds once received by your super - this avoids the same money being taxed twice.
Back to Ben, he has saved $700 in his personal name and is going to contribute this to super as a non-concessional contribution. This $700 will still be $700 once it arrives in his super fund.
Know the rules
There are contribution caps for both concessional and non-concessional contributions and it's important not to breach these, otherwise you will be slapped with penalty taxes. These taxes eat away at what you were trying to achieve, undoing all the good work your fund is trying to do for you. Make sure you are mindful of your contributions if you are thinking about putting more into super.
- Concessional contributions cap for 2014-15 financial year: $30,000
- If you are 49 or over on 30 June 2014, the concessional contribution cap is $35,000
Non-concessional contributions cap is $180,000 per year. You can bring forward three years of non-concessional contributions and contribute a total of $540,000 in one financial year, however you can not make any further non-concessional contributions in the following two financial years.
Consolidating your super
When you start with a new employer it's likely they will offer you to join the super provider of their choice. While this is the easy option, you might need to ask yourself if this is the right option for you.
It may be that you have collected a couple of different super accounts over the years, which is easy to do if you have switched jobs and gone with your employer's default super fund option. Most people really only need one super fund, so it is wise to consolidate all of your super balances into the one fund.
If you are into saving time and money - and let's be honest, who isn't? - having your super in one place will do this for you. Most super funds have an account keeping fee of at least $1.50 per week; over the course of a year this sums up to $78. Multiply that by the number of super funds still in your name, collected over the years with each job you've had. Adds up, doesn't it? You wouldn't want to be paying this amount every year just to have multiple super accounts. It's much better in your pocket than being eaten up in fees and charges.
The ATO website has a form you can use to help with moving your super to be in the one place.
Before you close down any of your existing super funds though, you should check if there are any termination fees and existing insurances - and if there is, see if you can transfer your insurance from one super fund to another.
Accessing your super
When it comes time to get our hands on our retirement savings, we need to tick a couple of boxes first, before we are able to access our super.
