Complete Guide to Superannuation in Australia

By Simon Cooper
March 14, 2022

Superannuation, or ‘super’, is the money put aside by an employer over an employee’s working life to live on upon retirement. It is important because the more money that is saved, the more money there will be for one’s retirement.

The Two Phases of Superannuation

An individual’s superannuation balance can be held in various ways: Accumulation Phase or Pension Phase, or in some cases a combination of the two.

It is important to understand the difference between Accumulation Phase and Pension Phase within superannuation since the tax treatment, administration, regulatory requirements and available strategies vary between the two.

Generally, an individual who has not yet reached their superannuation preservation age, will have their total superannuation savings in the Accumulation Phase while a person who has reached their preservation age has a lot more flexibility as to how much they will hold. This is usually determined by personal income needs and tax-effective retirement approach.

1. Accumulation phase

Accumulation Phase is the place superannuation savings are held while a person is working and accumulating wealth for retirement. All the contributions you make during the accumulation phase are kept until your retirement.

Concessional contributions and fund earnings in the accumulation phase are taxed at the rate of 15% (up to the concessional contributions cap).

2. Retirement phase

Super funds are transferred into the retirement phase when a member commences a super income stream or pension. Fund earnings on assets transferred into the retirement phase to support the pension income stream are tax-free.

Since July 2017 there has been a cap of $1.6 million that can be transferred into the retirement phase (known as the transfer balance cap).

What Is The Benefit of Putting Money Into Your Super?

One of the biggest rewards of having these employer-funded payments is that it takes the pain out of saving for many Australians, but it can also encourage a sense of complacency. The topic of super does not often come up in conversations especially for younger workers who still have decades until retirement.

Once your money is inside your super, it is kept away for the whole duration of your working years until you retire or reach under condition of release. Although it may seem overly restrictive, it allows compound interest time to create a substantial nest egg. Your super contributions and investment earnings are taxed at concessional rates and you can eventually withdraw your savings tax free in retirement. This also benefits the government as more individuals are financially prepared for retirement, the less it needs to spend on the Age Pension and other welfare benefits in the future.

  • Concessional Contributions – These are contributions that are made using your before-tax income. The term ‘concessional’ is used because you pay contributions tax on money going in at the concessional rate of 15%, rather than paying tax at your marginal rate. They include the superannuation guarantee (the amount of super your employee has to pay into your fund by law), any additional contributions you make via salary sacrifice, and any personal contributions from your after-tax income for which you claimed a tax deduction.super-image-one
  • Non-concessional Contributions – These are contributions that you make using your after-tax dollars, which you have not claimed as tax deduction. This includes after-tax contributions made by you, your employer or your spouse. No contributions tax is paid on your money going in, but any excess contributions will be taxed at 47%.

Your Personal ‘Super’ Heroes

To be financially prepared for the future is to be able to have control of your income, expenses and investments such that you can manage your money and achieve your goals. Planning for your future also means understanding the ever-changing tax regulations as well as the essential superannuation which will guarantee that you will be comfortably provided for, for the rest of your retirement.

Forward360 will help put your minds at ease. It is our goal to find the right strategy specifically tailored for your needs that fits comfortably into your lifestyle. We have a dedicated team of professional financial advisors that will help you on your retirement planning to achieve that dream lifestyle sooner and wealthier.

Simon Cooper

Co-Founder, Managing Director, Financial Adviser

Simon is a financial advisor who takes his work seriously. He ensures that all of his clients receive the best possible advice, so that they can reach and exceed their financial goals, both personally and professionally. Simon has been in the business for many years, and has a wealth of experience to share with his clients. He is known for being friendly and approachable, and always puts the needs of his clients first. Simon Cooper is an Authorised Representative of Reedy Capital Pty Ltd (AFSL No. 495539), Authorised Representative Number 1248807 and a financial adviser at Forward360.

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