What is superannuation?
Superannuation, or super, is a long-term savings arrangement that helps people save for retirement, so they rely less on the government Age Pension.
Who regulates it
Three main bodies regulate super in Australia:
- the Australian Taxation Office (ATO), which regulates SMSFs
- the Australian Securities and Investments Commission (ASIC)
- the Australian Prudential Regulation Authority (APRA), which regulates the large funds
What is a contribution?
Money paid into a super fund is called a contribution.
Types of contributions
Concessional contributions
These are paid from income before tax. They include employer contributions, salary sacrifice contributions and personal contributions the member claims a tax deduction for. The fund generally pays 15% tax on them when they come in.
Non-concessional contributions
These are contributions a member chooses to make from after-tax money. The fund doesn't pay tax on them, and the member can't claim a tax deduction for them.
The caps
Each type of contribution has a yearly cap, and contributions above a cap can mean extra tax. The caps change from time to time, so check the ATO's current contribution caps before you contribute.
Contribution splitting
The super rules let a member split some of their contributions with their spouse, by transferring them to the spouse's account. This can help a couple even out their balances, for example when one partner has spent time out of paid work.
A member can split up to 85% of their concessional contributions for a year. The amount transferred is treated as a rollover for the receiving spouse, so it isn't taxed again when it arrives.
What happens next
Once contributions are in a super fund, they are invested on the members' behalf. The returns go to each member's account, and members can withdraw their super once they meet a condition of release, such as retiring after reaching preservation age.
Every super fund is run by one or more trustees. In a self-managed super fund, the members are the trustees, looking after their own retirement savings.
The idea behind super is that saving is compulsory. Money in super generally can't be withdrawn before retirement, except in limited circumstances, so it is there when members need it.
If you're a trustee, your accountant or financial planner can tell you more about contributions to your fund.