SUPERANNUATION
What is Superannuation?
Superannuation is a form of savings where money is set aside by you and/or your employer and invested for your retirement. It is generally an ideal way to invest money for your retirement. Many funds also pay benefits if you die, or if an illness or accident makes you unable to work.
The key features of superannuation are:
- Your employer must contribute 9% of your earnings base to your fund
- Money from your superannuation account can usually be taken out only at retirement, and
- It is generally taxed at a lower rate compared to other forms of investment.
What types of superannuation funds are there?
There are four basic types of superannuation fund:
- Corporate funds, which are open to people working for a particular employer or corporation (including public sector funds)
- Industry funds, which are open to people in a particular industry or under a particular industrial award (some industry funds are open to anyone)
- Retail funds run by financial institutions, which are open to the public, and
- Self managed superannuation funds, which are open to up to four people.
Superannuation funds are set up under a trust deed. Trustees run the fund and, by law, they must act honestly and prudently, and make decisions in the best interests of all members.
Changes to Superannuation
In the May 2006 Federal Budget, the Treasurer announced substantial changes to the superannuation. These changes are designed to boost superannuation savings.
Most of the changes will apply from 1 July 2007 and include the following;
- Age based deduction limits for deductible superannuation contributions will be abolished and replaced with a streamlined set of rules. Under these rules;
- Employers will be able to claim a full tax deduction for all superannuation contributions made on behalf of employees, and self-employed individuals will be able to claim a full tax deduction for all personal superannuation contributions; and
- A concessional deductible contribution limit of $50,000 will generally apply ‘per person' per annum. This is a limit on the amount of deductible contributions to be taxed at 15%
- Undeducted contributions will be limited to $150,000 each year (subject to a 3-year averaging system). A transitional $1million limit will apply between 10 May 2006 and 30 June 2007.
- An individual will no longer be compelled to withdraw their superannuation benefits when the reach a particular age. (e.g., age 65 and the work test is not satisfied, or age 75).
- All pensions will be required to meet only one single set of minimum standards.
- Lump sum and pension payments from a superannuation fund (including an SMSF) will generally be tax-free when paid to an individual who has reached 60 years of age.
Lump sums
From 1 July 2007, all lump sum benefits paid from a taxed source to an individual aged 60 or over will be tax-free. There will be no RBL.
Pensions
All pension payments from a taxed source will be tax free when paid to individuals aged 60 or over. This will also apply to pensions that commenced before 1 July 2007. There will be no RBL.
Pensions
Pension payments for individuals aged under 60 will continue to be taxed under current arrangements, although consistent with the simplification of taxation of lump sum payments, tax will be lower in some cases.
Pensions commenced on or after 1 July 2007, which would currently qualify for a pre-July 1983 component will have this included in the exempt component of the pension. The current arrangements for calculating the deductible amount of a pension will remain for pensions that commenced prior to 1 July 2007.
The full superannuation pension rebate of 15 per cent will apply to all pensions paid from a taxed fund if the individual is aged 55 to 59 years.
Once the pension recipient turns 60, their pension will be tax- free.
For further information see; http://www.superchoice.gov.au/employees/general/