Superannuation, often called super, is money you set aside during your working life to provide an income to live on when you retire from work. Currently employers must by law contribute 9.5%
(until June 2021, 10% from July 2021-June 2022, 10.5% from July 2022-June 2023, 11% from July 2023-June 2024, 11.5% from July 2024-June 2025, 12% from July 2025-June 2026 onwards.) of an employee's
ordinary time earnings (OTEs are what you generally earn for ordinary hours of work like bonuses, allowances etc. OT is not included) into a super fund. Super contributions are remitted at least every three months (quarterly). Employers have 28 days after the end of each quarter to make the payment. Also, there is a maximum limit on any individual earnings base for each quarter. The maximum limit (FY 2018/19 is $54,080 per quarter) is indexed each year and is announced by ATO. Example: If Joe salary is $250,000/year. His employer has to contribute $54,080 x 9.5% per quarter only.
(For me, I feel like it is the same concept as mutual funds and/or VUL single pay if you include insurance in your super.)
There are two types of contributions to super:
- Concessional - employer contributions and contributions made under salary sacrifice arrangement. Contributions made before tax but are taxed in the super fund at 15%.
- Non-concessional - contributions made into super after being taxed. They are not subject to be taxed again when put into the super.
There is an annual cap on the contributions. Any excess made will be added back to your tax return and taxed at your marginal tax rates. As of this FY, the cap is $25,000 and may change from time to time so it is important to keep aware of the rules.
If you want to boost your super, you can have a salary sacrifice arrangement with your employer. These contributions will not be counted as assessable income for tax purposes so are taxed at a maximum rate of 15% which is less than the marginal tax rate but only up to the cap of $25,000. However, there is a ruling that from July 2018, if your super balance is less than $500,000 on June 30 of the previous FY, you may be entitled to contibute more. The first year you'll be entitled to carry forward unused amounts is on FY 2019/2020. Unused amounts are available for a maximum of five years and after this period will expire.
If you are a low or middle income earner and you make a personal (after tax) contribution to your super, the government also makes a contribution (co-contribution) up to a maximum amount of $500. ATO will work out if you are eligible for it when you lodge your tax return and if the super fund has your TFN, the ATO will pay your super account automatically.
Some low or middle income earners might also be eligible for the low income super income tax offset (LISTO). When an employer makes the super contribution, the government may make a LISTO payment which equals 15% of the contributions.
Once you are eligible to access your super, you can a) take it all as a lump sum b) invest it in a superannuation pension or annuity that provides you with a regular income stream (taxable) c) do a combination of both.
Do You Know. Your super money can be taxed in three stages: contributions (15%), investment earnings (depends on how it is managed. Same as mutual funds, the NAPVS shown is already net of fees, taxes etc.) and super benefits (super income stream live dividends from your super).
Getting Started. A standard choice form is provided upon work commencement for your completion. You can choose either your employer's nominated fund or your own preferred super fund. Make sure your super fund is a complying fund, one which complies with certain rules set by the government. You can use the
employer contributions calculator on the
Moneysmart website or the
ATO's employee superannuation guarantee calculator on the ATO website.
- You should also check the statements from your super fund regularly to be sure your employer is paying the correct amount into the right fund.
- If super has been paid into various employer-nominated funds, you'll end up with super in a number of accounts and will be paying a lot of fees and costs. To minimise such, it is usually better if these amounts are combined in one and before doing so, find out if a fund will charge you to close account with them and whether you'll lose any other benefits.
- Monitor your super account. The level of fees charged and the rate of return on your funds can make a very big difference to the amount built up in your super fund when you retire.
- Use your mygov account to see a list of all your super accounts, look for a lost super or request a transfer.
- Deciding when and how to take your superannuation is a complex decision as there are many tax and welfare implications. You can seek advice from a professional.
Choosing A Fund. When choosing a fund, consider the fees and costs, features, insurance cover (many super funds provide life and disability cover- death cover, TPD and income protection), investment options and performance, and most of all, it is licensed and complies with super rules and regulations.
So if your contract says, salary will be $50,000 inclusive of super. It means your gross salary is $$45,662.10 ($50,000/1.095).
To know how much is the average salary, you can do your research here
https://www.payscale.com/research/AU/Country=Australia/Salary by indicating your profession. So you'll have an idea on how to answer, "What are your salary requirements?" in an interview.
To know more about super,
https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/super-contributions
If you are familiar with mutual funds or VUL, I think superannuation works that way. VUL if you have an insurance component in your super account.
References: ATO Super+Tax+You, SG Act, Money Smart
*All those in blue are linked to their respective websites. Click for more information.
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