What is Superannuation and how does it work.

What is Superannuation and how does it work. 

Super is basically the saving for retirement all employers in Australia are required by law to pay a percentage from your salary and wages (currently 9.5%) into your superannuation account. Super in Australia is semi-compulsory which means if you are an employee, your employer is required by law to pay you super, however if you are self-employed it is optional so you can choose to pay yourself super or not.

 

How to choose a super fund?!

You will need to establish your criteria to choose the superannuation fund that is suitable for you, these criteria might include;

• The fund investment performance
• The fees it will charge you
• What insurance options do they have

 

There are different types of superannuation funds to choose from.

• Retail super funds
• Industry super funds
• Public sector super funds
• Corporate super funds
• Self-managed super funds

When and how can you access your super? Super can be paid a lump sum or an income stream, an you can access it when you are 60 years of age (maybe earlier if you were born pre June-1964)

Super Vs Pension.

Australian citizens over 67 years of age are entitled for age pension if their income and assets are below specified levels. The pension may also be The pension is reduced by the maximum of the income and assets test.

Income received from a superannuation fund is considered to be income for pension purposes, and reduces the pension by a percentage of the income received that is over the limit. However, if this is received as a “super pension” then the effect on the age pension is discounted by the “cost” of the “super pension”. This “cost” is calculated by dividing the total super balance by the life expectancy of the receiver at the time the super pension began. This means that if one withdraws ones super evenly over one’s expected life expectancy there is essentially no income test on it.

 

Self-managed super fund (SMSF)

What is it? It is a private super fund that you manage yourself. Your SMSF can have up to four members, who are friends or family.

Is it for you? Well, before you go ahead consider the risk, costs, efforts and responsibilities

SMSFs take time and money and it is heavily regulated and you must be aware of all legislation and regulations covering SMSFs, in addition you must have the right advisory team in place to support you, the accountant (The Bottom Line Business Advisory), the auditor, the financial planner.

Contact us today if you would like more information