Superannuation or ‘super’ is money that your employer or yourself (if you are self employed or you make voluntary contributions) puts aside over your working life for you to access and live on when you retire from work. The more money you put away, the more you will have when you retire.
The superannuation guarantee was introduced and passed into government in 1992 with the intention of reducing reliance on a publicly funded pension system and to promote self-funded retirement savings.
How does superannuation work?
Super for employees
Employees are paid super by their employers. Money is paid into the employees super account and these deposits are called employer superannuation guarantee contributions. Contributions are paid on top of the employee's gross salary and wages.
To regulate this, there are laws to determine how much super needs to be paid. A recent change from July 1 2022 determined that super needed to be paid regardless of how much the employee is paid per month. For employees under 18, they need to work more than 30 hours a week to be eligible.
Super applies whether employees work casual, part-time or full-time hours, or is a temporary resident. Contractors may also be eligible.
The employer is required to pay an amount based on the current super guarantee rate which from July 1 2023, is 11% of the employees ordinary time earnings. This is planned to progressively increase to 12% by 2025.
Superannuation Guarantee is usually calculated on ordinary time earnings. Ordinary time earnings are what the employee would generally earn for ordinary hours worked (i.e. not overtime). However, it also depends on your applicable industry award or your employment contract.
It is possible to add extra contributions which are called ‘voluntary’ contributions. These contributions have age-based restrictions and also limits as to the amount you may contribute.
If you are a low or middle-income earner and make personal (after tax) contributions to your super fund, the government may also make a contribution (called a co-contribution) up to a maximum of $500.
Super obligations for employers
Employers have key responsibilities when it comes to paying their employees super contributions.
Employers need to:
- Check that employees are able to choose their own funds and provide employees with a Superannuation standard choice form. This form should be completed and signed by your employee. It will have all of the information you require to input the employee's superannuation data into your software. Keep this form in your employees permanent file for future possible audit purposes.
- If employees will not choose their own fund, advise them of your default superannuation fund or request employee stapled super fund details if they do not make a choice.
- Pay and report contributions for employees by the quarterly due dates or more often if eligible. From July 1 2026, contributions will be made at the same time as employees salary and wages. In most cases, the superannuation payment must also be received by the nominated fund prior to the due date. So we strongly suggest you pay at least a week prior to the due date to ensure the payment is processed by the clearing house in time. If a late payment or lodgement occurs, make sure you lodge a superannuation guarantee charge statement as quickly as possible.
Benefits of super
Some key benefits of superannuation are:
- Guaranteed Income for Retirement — Super funds ensure you will have money when you retire.
- Lower fees — Fees tend to be lower than other retirement account options.
- Investment choices — Super funds often allow you to choose your investment types.
- Long-term — A super fund can carry you through you entire career/working life. They can be ‘stapled’ to you — These are called stapled super funds.
- Early Access — If you are eligible due to terminal illness, incapacitation or temporarily unable to work, you can access your super early without penalty.
- Government Contributions — If you are eligible, the government will contribute a maximum of $500 PA to your super fund.
When can I access my super?
Superannuation can be accessed when you turn 65 or earlier if you meet a condition of release.
How much is superannuation?
Superannuation is worked out at 11% in 2023-24. There is a calculator to help you determine how much super you should be paid: ATO Super Guarantee Calculator
Different kinds of superannuation
There are two types of super funds:
1. Accumulation/Pension Funds
In an accumulation fund, money grows over time. The value of your super depends on how much your employer and/or yourself contributes and on the investment return of the fund after fees and costs.
2. Defined Benefit Funds
In a defined benefit fund, your retirement benefit is based on a formula rather than an investment on return. Most of these funds are corporate or public sector funds.
The benefit is usually calculated using:
- The money you put in and who your employer is
- Your average salary over the last few years before retirement age
- The number of years you worked for your employer
These funds can be hard to leave, and often offer very generous returns so it’s important you get good advice if you were to leave one.
How are superannuation contributions made?
If you are a small business owner with less than 19 employees or have an annual turnover of less than $10 million, the ATO offers a free ‘clearing house service’ which is a service used to make contributions. The Small Business Clearing House (SBSCH) makes it easy to pay your contributions online in one payment and is SuperStream compliant.
You can make voluntary super contributions directly to your super fund. These contributions may be concessional (taxed) or non-concessional (not taxed) when paid to the super fund. There are limits and restrictions as to the amount you may contribute.
Should I opt for a self managed superfund (SMSF)?
There are many advantages to running your own SMSF, however it’s worth noting that the advantages may not apply to everyone. Everyone’s situation is different, and running a successful SMSF depends on a wide range of variables. Check out our blog on SMSF’s to see if this would be a good option for you: Benefits of an SMSF.
What is the superannuation rate?
11% in 2023-24 and it will gradually increase to 12% by 2025
How to find my Unique Superannuation Identifier number?
To find your Unique Superannuation Identifier or your USI, you can look up your most recent superannuation statement, or log on to your account online. Alternatively, if you can’t find it, you can contact the ATO to access your USI. This number is different to your member number and the fund’s ABN.
Is superannuation taxed?
Earnings on superannuation is generally taxed at 15%, if you are adjusted taxable income is less than $250,000. This is often less than your personal income tax rate, which means it’s a great way to save.
Where can I see my superannuation?
You can find your super balance by logging in to your MyGov account or by logging into your super fund account.
When can I access my superannuation?
You can access your superannuation at 65, or when you reach your preservation age and retire. Also, you may be eligible to early access your superannuation due to special circumstances, including terminal medical conditions or severe financial hardships etc.
What is salary sacrifice superannuation?
Salary sacrifice is an arrangement you can make with your employer to have some of your salary paid to your super fund. This can be for the purpose of saving for your retirement or it can reduce your taxable income so you may pay less income tax. Whether you can salary sacrifice is depended on contribution limits and your age.
How much tax do you pay on superannuation withdrawal?
If you are aged 60 or over, withdrawals from a taxed super fund is generally tax-free. If you are under 60, you will likely have to pay tax.
Can you access your superannuation early?
You are eligible to access your super early in certain circumstances including terminal illness, incapacitation or temporarily unable to work.