Superannuation is an essential part of Australia's retirement savings system, offering significant tax benefits that can help you grow your wealth over time. Whether you’re new to the workforce or approaching retirement, understanding how super works can make a big difference in your financial future. In this guide, we’ll break down the key aspects of superannuation.
Why Superannuation Matters
Earnings within superannuation are taxed at 15% whilst in accumulation phase. Once your superannuation is moved to retirement phase the earnings are tax free. If the same investment, earning a 10% pre-tax return was held in your personal name and taxed at the highest marginal tax rate compared to being taxed at 15% in superannuation, the net difference in the investment balance after 10 years is almost 35%. After 20 years this difference increases to over 80%. In preparation for retirement, you may wish to consider making voluntary contributions to your superannuation in the form of concessional or non-concessional contributions.
Concessional Contributions: A Smart Way to Save
These are contributions in which you are eligible to receive a tax deduction. The current annual limit for these contributions is $30,000. Employer superannuation guarantee payments also count towards this annual cap.
Benefit: When you earn over $55,000, by making a voluntary $10,000 contribution to your superannuation, a net tax saving of $1,700 or 17% will be achieved.
Non-Concessional Contributions: Supercharge Your Super
These are contributions in which you are not eligible to receive a tax deduction. The current annual limit to these contributions is $120,000. However, you can bring forward the next 2 years to make $360,000 in the one year. Your ability to access the bring forward rules are reduced once your total super balance (TSB) exceeds $1.66million.
Benefit: Non Concessional Contributions allow you to get large amounts of funds into the concessionally taxed superannuation environment. Earnings on these funds will then be taxed at 15% whilst you are working and tax-free during retirement.
Investing in Super: Manage Your Risk
As your superannuation balance grows, it’s crucial to ensure that your investments are aligned with your risk tolerance. Taking on too much risk, especially as you near retirement, could leave you vulnerable to market downturns.
Balancing your asset allocation to reflect your stage in life is key to preserving your wealth and ensuring your super works for you in the long term. This is commonly referred to as sequencing risk.
Accessing Your Super: What You Need to Know
Once you have met a condition of release, you are eligible to commence a retirement income stream with your superannuation funds and make lump sum withdrawals. For most superannuation accounts, payments made after age 60 will be received tax-free.
The common conditions of release to access retirement funds are:
- Reaching age 65
- Retiring after age 60
- Ceasing an employment arrangement after age 60
By commencing a retirement income stream with your superannuation funds you will move the funds into pension phase. You will need to draw a minimum pension amount each financial year once you commence a retirement income stream with your superannuation funds. The maximum amount of funds that can be used to commence retirement income streams is currently $1.9million.
The minimum pension drawing rates are based on your pension account balance and age:
| Age at start of Financial Year or Pension Commencement | Minimum Drawdown Rate |
| Under 65 | 4 |
| 65-74 | 5 |
| 75-79 | 6 |
| 80-84 | 7 |
| 85-89 | 9 |
| 90-94 | 11 |
| 95 or older | 14 |
What if I don’t need the money?
Commencing a retirement income stream does not prevent you from being able to contribute funds into superannuation. It may be beneficial for you to draw the minimum pension and put the money back into superannuation.
What if you haven’t met a condition of release but need money from Super?
If you are aged between 60 and 65 and have not met a condition of release, you are likely eligible to commence a Transition to Retirement Income Stream (TRIS). Commencing a TRIS would allow you to draw a tax-free pension from your superannuation account. You would be required to draw a minimum of 4% and a maximum of 10% of your superannuation balance each financial year.
Downsizer Contributions: Boost Your Super Later in Life
If you’re aged 55 or older and are downsizing by selling your home, you may be eligible to make a downsizer contribution of up to $300,000 into your super. This can provide a significant boost to your retirement savings, allowing you to maximize the tax benefits of super even later in life. Importantly, this contribution does not contribute to the non-concessional contribution annual cap.
CGT Exempt Contribution
Applying available Small Business CGT Concessions upon the sale of an eligible active asset may allow you to make large contributions to your superannuation account. There are multiple concessions available with differing applications regarding the eligible superannuation contributions.
Conclusion
Superannuation is one of the most effective ways to save for retirement thanks to its concessional tax treatment. By understanding how super works and taking advantage of concessional and non-concessional contributions, you can significantly boost your retirement savings over time. Whether you’re just starting out or preparing to retire, strategic superannuation planning can help you achieve financial security and peace of mind.
If you’d like to explore more about how superannuation fits into your financial plan, contact one of our experienced advisors today. Alternative, download our superannuation guide for a summary of the important superannuation features.
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