Whether you're just starting out in your career, or getting close to retirement age, superannuation is very important.
Superannuation is your money. By making regular and smart superannuation contributions over the course of your working life, you are more likely to eventually have significant savings that can help pay for your life after work.
Here are several reasons why superannuation is incredibly important:
Retirement can last a long time
Once you have retired (or semi-retired), your main source of income will cease or diminish. For this reason, it's very important that you have enough funds to cover you for the rest of your life. Lots of Australians underestimate how much money they will need for their retirement. Keep in mind also that people are generally living longer.
The Age Pension may not be sufficient
While the Australian government offers an Age Pension to eligible individuals, the amount you receive may not be enough to give you the lifestyle or fulfil the financial obligations you currently have. After working hard for so many years, it's important to enjoy your retirement. You may, for instance, have great travel plans for when you retire. Or you may wish to take up some new hobbies, sign up for some new classes, or take up some new memberships since you're no longer working. If this is the case, it can be beneficial to supplement any Age Pension by drawing on your superannuation, for example as an income stream.
It’s an effective way to save over the long term
The Australian Government has provided tax concessions to super which help to make it one of the best long-term investments.
Your superannuation is essentially money put aside for your retirement - your savings. Superannuation is a long term investment, so every dollar you save could make a significant difference.
One of the main features of super is that you typically can't access your money until you retire after reaching your 'preservation age'. The table below outlines the preservation age applying to an individual:
|Persons born:||Preservation Age|
|After 30 June 1964||60|
|1 July 1963 - 30 June 1964 (inclusive)||59|
|1 July 1962 - 30 June 1963 (inclusive)||58|
|1 July 1961 - 30 June 1962 (inclusive)||57|
|1 July 1960 - 30 June 1961 (inclusive)||56|
|Before 1 July 1960||55|
So even if retirement may seem like a long way off, it's important to get your superannuation account started as soon as you enter the workforce - and regularly review you super to ensure that you are on track to achieving your long-term goals.
It's also a wise idea to find any lost superannuation you may have accumulated over the years by conducting a superannuation search, and consider consolidating it into the one super account.
Insurance cover in superannuation
Super funds generally offer their members insurance cover within the fund.* Insurance cover can help provide financial security to the member or their family in the event of the member's disability or death. Members may need to provide information in relation to their health when applying for insurance.
There are generally three types of insurance available through super funds:
1. Life insurance - lump sum insurance proceeds are paid into your super account if you are diagnosed with a terminal illness, or when you die. The balance of your super account is then payable to your beneficiaries and/or your legal personal representative.
2. Total and permanent disablement (TPD) - lump sum insurance proceeds are paid into your super account if you can no longer work due to a total and permanent disability and the super fund trustee is satisfied that due to your ill-health (physical or mental) it is unlikely you will engage in gainful employment for which you are reasonably qualified. If the trustee is satisfied you are permanently incapacitated, the balance of your super account can be accessed.
3. Income protection (also known as salary continuance insurance) - a regular payment, typically around 75% of your pre-disability salary, is replacement income paid to you if you suffer an illness or injury which temporarily prevents you from working.
Insurance cover through a super fund is often arranged under a group insurance policy which can be less expensive than insurance cover offered directly to individuals outside super.
Insurance premiums are funded from your super balance rather than your after-tax income as they would be outside super. This means you don't need to find the money to pay your premiums but you'll need to ensure your super balance is sufficient to cover your premium payments. You can make additional contributions to super to cover your insurance premiums and to help ensure your retirement savings are not depleted prematurely.
Superannuation can deliver great tax incentives
To encourage as many Australians as possible to build their own savings for retirement, the Government provides some significant tax concessions on superannuation contributions and earnings. Generally speaking, any contribution that your employer makes (up to certain caps) and any investment earnings on your superannuation balance are taxed at a maximum of 15%. This rate may be lower than your personal marginal tax rate.
Things you should know
* Insurance cover can only be provided automatically if you’re 25 or over and have a super balance of $6,000 unless you request cover. Your insurance may be automatically cancelled if your account has been ‘inactive’ (i.e. no contributions or rollover) for a continuous 16-month period and you have not elected to maintain your insurance cover.
This is general information only and does not constitute any recommendation or personal advice. It has been prepared without taking account of your objectives, financial situation or needs. It is current as at 9 December 2020, and is subject to change.
The taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. It has not been prepared by a registered tax agent. You should seek independent professional tax advice from a registered tax agent about any liabilities, obligations or claim entitlements that arise, or could arise, under a taxation law.
Superannuation is a long-term investment. The Government has placed restrictions on when you can access your preserved benefits. The Government has set caps on the amount of money you can add to superannuation each year on a concessionally taxed basis. In addition, the Government has set a non-concessional contributions cap. For more detail, speak with a financial adviser or visit the ATO website.
There is no charge for accepting any rollovers, however before requesting the rollover, you should check with your other fund(s) to determine whether there are any exit fees for moving your benefit, or other loss of benefits (e.g. insurance cover). There may be limited circumstances where your employer is not required to accept your Choice of Superannuation fund form e.g. if you have already exercised Super Choice in the last 12 months.
This information may contain material provided by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. Information that has been provided by third parties has not been independently verified and the Westpac Group is not in any way responsible for such information.
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