This fact sheet provides additional information to help with understanding the investment, tax and other financial planning concepts that we have discussed with you or included in your Statement of Advice.
Please contact your adviser if there is any aspect on which you need further information or clarification.
What is Superannuation?
Superannuation is an investment vehicle designed to assist Australians save for retirement. The federal government encourages saving through superannuation by providing generous tax incentives on contributions, investment earnings, and withdrawals in retirement.
Contributing to Superannuation
You may contribute to your superannuation balance, or that of your spouse, subject to limits on annual contributions, age and work status.
There are two main types of contributions:
- Concessional contributions, which are made by you or your employer and on which the contributor claims a tax deduction. Concessional contributions derive their name from the lower rate of tax that is applied when compared with the company tax rate and personal marginal tax rates.
- Non-concessional contributions, which are made by you and on which you do not claim a tax deduction.
The Superannuation Guarantee (SG) contributions paid by your employer are concessional contributions, as are salary sacrifice contributions that your employer deducts from your pre-tax salary.
Examples of non-concessional contributions, other than contributions made personally from your after-tax savings, include spouse contributions and contributions made to receive the government co-contribution.
For more information, refer to Understanding Superannuation Contributions.
Components of your Superannuation Balance
There are two key components of your superannuation balance:
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The tax-free component of your superannuation balance typically derives from the non-concessional contributions that you have made.
The taxable component is the total value of your superannuation, less the tax-free balance. The taxable part typically consists of concessional contributions, made by you or your employer, as well as investment earnings.
The taxable component can be split further, into:
- a taxed element, which has incurred contributions and earnings tax.
- an untaxed element, which is not as common but arises from public sector superannuation schemes and insurance benefits that have not incurred any tax.
Making a withdrawal from Superannuation
Government legislation aims to preserve your superannuation balance to ensure that the benefits are used only for retirement. You are unable to make a withdrawal from your superannuation until you meet a condition of release.
Conditions of release relevant to retirement include:
- Reaching age 65
- Retirement from the workforce after reaching your preservation age
- Transition to retirement after reaching your preservative age
- Ceasing an employment arrangement after age 60
Preservation ages are based on your date of birth, and can be found here. If you were born after 30 June 1964, your preservation age is 60.
Your superannuation fund trustee may also authorise a withdrawal if you meet one or more of the following conditions of release.
- Total and permanent disablement
- Terminal medical condition
- Permanent departure from Australia for eligible temporary residents
- Severe financial hardship, at trustee discretion
- Compassionate grounds, at trustee discretion
Death is also considered a condition of release.
Accessing your Superannuation Benefits
Once you have met a condition of release, you have a decision to make. You may decide to do nothing, which means keeping your funds in the accumulation phase of superannuation. If you need to draw an income, you may begin drawing a pension using a retirement income stream. You may also decide that you want to withdraw your entire superannuation balance in a lump sum.
The tax and social security implications of these options differ significantly and change depending on your age and the components of your superannuation balance.
Accessing your superannuation as an income stream
The most common type of superannuation income stream established by retirees is an account-based pension. Account-based pensions provide a flexible and tax-effective method of generating income in retirement.
Earnings and capital gains within the account-based pension are tax-free, once you have met a condition of release and are over the age of 60.
Subject to individual circumstances, if you are at least 60 years of age your pension payments may be received tax-free. If you are under age 60, you may be eligible to claim a tax-free amount, as well as a 15% tax rebate on the taxable portion of the payment.
If you have reached your preservation age but not met a condition of release, you may be able to access another account-based pension, referred to as a Transition to Retirement pension. Establishing this pension can help to supplement your income as you reduce working hours before you retire, and in certain circumstances can help you to reduce your income tax by making salary sacrifice contributions back into superannuation.
Accessing your superannuation as a lump sum
You may decide to withdraw your superannuation in one or multiple lump sums.
Any money left in your superannuation account will continue to incur tax on earnings and capital gains, with the personal income tax on withdrawals depending on your age and the components of your balance.
Click here for the income tax rates and tax-free allowances relevant to lump-sum withdrawals.
Insurance within Superannuation
Most superannuation funds provide you with a range of personal insurance options, designed to protect you and your family from the financial impact of permanent disability or death.
A key benefit of holding your insurance in superannuation is reduced cost, given the availability of group insurance policies. By funding the premium with concessional contributions, you may also receive a tax benefit.
You should take care to ensure that the group insurance policies meet your needs, in terms of coverage amount and policy definitions. Some forms of cover are not available, and the definition of permanent disability adopted by the insurance company may not provide you with protection against suffering an injury that means you are unable to work in your industry.
It is important to speak with your financial adviser when considering your insurance needs.
Superannuation Death Benefits
The tax payable on superannuation death benefit depends on your age when you die, and whether your beneficiary is a tax dependant.
A tax dependant is a current or former spouse, a child under 18, financial dependant or someone who was in an interdependency relationship with you before your death.
You can nominate a beneficiary or beneficiaries to your superannuation fund trustee, using a non-binding beneficiary nomination form. They will consider this but are not bound to follow it when determining how to distribute your superannuation death benefit.
You may wish to provide a binding nomination, to ensure that your preferred beneficiaries receive the benefits. The use of binding nominations is common in complicated family situations.
It is essential to review any nominations regularly, to ensure that they remain aligned with your wishes.
Important Information
Walbrook Wealth Management is a trading name of Barbacane Advisors Pty Ltd (ABN 32 626 694 139; AFSL No. 512465). Barbacane Advisors Pty Ltd is authorised to provide financial services and advice. This post is general information only and is not intended to provide you with financial advice as it does not consider your investment objectives, financial situation or needs. You should consider whether the information is suitable for your circumstances and where uncertain, seek further professional advice. We have based this communication on information from sources believed to be reliable at the time of its preparation. Despite our best efforts, no guarantee can be given that all information is accurate, reliable and complete. Any opinions expressed in this email are subject to change without notice, and we are not under any obligation to notify you with changes or updates to these opinions. To the extent permitted by law, we accept no liability for any loss or damage as a result of any reliance on this information.
