How are super contributions re-paid?

[Guest melanieb]

Hi all,

 

Am new here so apologies if this subject has been discussed before - I did look but couldn't find anything.

 

I was just wondering how the 9% employer super-annuation contributions eventually get back to you - like how does the pension over here actually work? Do you get it back in bulk when you retire or is it in monthly/weely pension plan? Is there a state pension on top of this? It is a long way off for us but I would like to understand it more (& am sure it'll come around all too quickly)

 

Also - I read something about sharing contributions. I am at home with our son & so we only have 1 income - is it more beneficial for my husband to split his contributions & what happens if he dies the day after he retires (no plans there honestly!!) does it mean I would get nothing or do the contributions get paid to the partner?

 

Any info or advice to make the whole thing a little less confusing would be appreciated...by the way have been travelling & moving around for years so have no uk pension contributions & don't know how they work either - will stop there as am aware I am sounding a little on the dense side...:embarrassed:

[Guest Liam]

Melanie

 

Here is an excerpt from a document on our website prepared for people moving to Australia. It contains most of the answers you were looking for.

 

2 points not covered:

 

1. Should your husband die then his superannuation account balance plus any insurance cover in the fund will be paid to his nominated benficiaries. Usually this is the spouse or a combination of the spouse and children if more tax effective. OFten this can be paid as a pension or as a lump sum depending on your needs and the funds rules.

 

2. Super splitting allows your spouse to ask the fund to split his contributions for the previous year across to your account (can be any amount up to 85% of Contributions ). This often helps in paying for insurance for the spouse through their own account. Can also be a hedge against future government changes to legislation and is a major strategy used where one spouse is a number of years older than the the other.

 

Here is the background on Superannaution and at the bottom some details on the Age Pension allowance from the Government. Hope it is of help

 

Overview of Australian Superannuation

Provision of retirement/pension benefits for an individual is made through the payment of superannuation contributions into a superannuation fund. The fund accumulates the superannuation until you and take your in the form of a pension or lump sum.

 

In general, it is mandatory for employers to pay a minimum of 9% of the salary of eligible employees to a complying superannuation fund. The fund accumulates the superannuation until the you retire and take your benefits in the form of a pension or lump sum.

Tax deductible contributions, whether paid by an employer or individual, are taxed in the year they are paid, within the superannuation fund, at a concessional rate of 15%.

All contributions made after 1 July 1999 are preserved, i.e. they cannot be accessed until retirement or certain other conditions of release occur. The preservation age of individuals born before 1960 is 55 years. For members born after 1960 the preservation age increases depending on your birth date. Individuals can access their benefits without conditions after age 65.

 

All superannuation funds are subject to strict and complex regulations which determine when benefits may be taken, and the tax treatment of the retirement benefits.

Retirement benefits may be drawn as a pension or a lump sum. There are concessional tax rates on lump sum superannuation benefits up to a certain threshold called Reasonable Benefit Limits, but in general, it is beneficial to take pension benefits rather than lump sum benefits. Pensions may have a 15% rebate, and often also have an additional tax free amount (the deductible amount) based on the undeducted contributions made by the members.

In May 2006, the Treasurer announced major changes in the budget to the taxing of benefits received from superannuation and pension funds. Effectively from 1st July 2007 all benefits paid to members that have previously been taxed or contributed from post tax dollars will be tax free.

There are several different types of pensions, some of which are more rigid "traditional" type fixed pensions, and others are more flexible in the amount drawn, and in allowing lump sums to be drawn. Certain pensions may only be paid from particular types of superannuation funds.

 

 

 

Retail Funds

Offer superannuation to the public at large, usually through an intermediary such as a financial planner or bank. These funds can usually be started with a balance as low as $1,000.

 

 

Wholesale Funds

Are designed for large superannuation balances. They typically accept only contribution balances over $100,000.

 

 

Industry Funds

An industry fund is usually provided by a union or employer group, and they may be run by union representatives from employers and employees. These funds are generally open to the public, and are generally cost effective as the fees are low due to the large volume of funds.

 

 

Self Managed Superannuation Funds (SMSF)

An SMSF is a fund with four members or less, and all members must be trustees of the fund. These funds are regulated by the Australian Tax Office, and must comply with annual audit and accounting requirements. However, they allow individuals to control their superannuation investments and benefits, and as they are self administered, costs can be controlled by the trustee. More detail on later pages.

 

 

Superannuation Employer Funds

An employer superannuation fund is one that has been provided for the employees at the firm. A panel of representatives of both the employer and employees usually control these funds. Many of these funds have evolved into industry funds and many are now also offered by retail fund managers as opposed to the employer.

Usually all the costs of running the funds are borne by the employer.

 

 

Retirement Savings Accounts (RSA)

A RSA is a superannuation product offered to the public by financial institutions such as banks, building societies, credit unions, life insurance companies and other prescribed institutions. RSAs are intended to provide a simpler low cost and lower risk retirement savings alternative to superfunds. Unlike conventional superannuation arrangements, RSA's do not come under a trust structure, but take the form of a capital guaranteed account. Instead of a trustee investing fund assets to produce a return (whether positive or negative), a RSA pays interest on a depositor's contributions. A depositor's account is generally capital guaranteed, that is, negative investment returns cannot be offset against the account. The money is invested in low risk assets, which are more likely to guarantee a positive return on the investors money - even if that return is likely to be less than that of a superannuation fund.

The use of RSA is aimed at people with low amounts of superannuation benefits, or with transient working patterns.

 

 

 

Government Age Pension

To be eligible for a government aged pension called a Centrelink Age Pension the following conditions must be satisfied:

 

 

 

• Australian resident and in Australia on the day the claim is lodged.
• Must have been an Australian resident for a total of at least 10 years, and at least 5 of these years must have been in one continuous period, or
  
• Residence in certain countries with which Australia has an International Social Security Agreement may count towards Australian residence, or
  
• Have a qualifying residence exemption (arrived as refugee or under special humanitarian program), or
  
• A woman who is widowed in Australia, when both she and her late partner were Australian Residents and who has 104 weeks residence immediately prior to claim, or
  
• Person who is in receipt of Widow B Pension, Widow Allowance, Mature Age Allowance or Partner Allowance immediately before turning Age Pension age.
  
• Can generally be paid for the total period of absence from Australia (some exemptions may apply), however, after 26 weeks the rate may change.
  

The age at which you are eligible for an Age Pension differs between men and women, but generally for women born after 1 January 1949 and for all men the age is 65.

The rate of payment is calculated under both the income and assets tests. The test that results in the lower rate (or nil rate) will apply.

A guide to all Australian Government Payments can be found atwww.centrelink.gov.au .

 

please do not hesiate to contact us to help you through the maze when you get over here.