I was again asked to write an article for one of my clients quarterly magazine to be published in the next few weeks.. Sports Medicine Australia are a national body for health professionals working in sports medicine. They asked for an article on an brief and basic update on superannuation Below is an edited version of the article in their Sport Health magazine
The Australian Superannuation system is regularly quoted as being the envy of the world. We are one of the few countries in the world that has a mandated superannuation system and since its introduction in the early 90’s it has seen the superannuation industry grow rapidly. It is now estimated that over a trillion dollars is held in Australian superannuation accounts.
It is a much regulated system and has extremely complex rules regarding contributions, withdrawals, pensions especially around the tax treatment of each of these. This article by no means will be able to explore all these intricate issues however should provide a basic snapshot on some of the main points. We recommend that you seek professional advice regarding your personal circumstances.
The Superannuation Guarantee Scheme requires employers to pay 9% of remuneration into a superannuation fund on behalf of employees. These employer superannuation contributions must be paid quarterly.
Since 2005, many Australian employees have been able to choose the fund their employer’s superannuation guarantee contributions can be paid to. The choice of superannuation funds allows workers to better manage their superannuation and have one single account should they wish.
The current 2011/12 individual concessional contribution limits including contributions made under salary sacrifice arrangements are $25,000 and $50,000 for individuals 50 years or older. Although the government has announced changes to reduce these limits over the next few years for people over 50.
Along with concessional (tax deductible) contributions, individuals can make non-concessional or after tax contributions to superannuation. The current cap on these non-concessional contributions are $150,000 per person in a financial year. There are also transitional arrangements that allow this yearly cap to be brought forward to enable three years non-concessional contributions to be made in one year as long as no further contributions are made in the following years.
The Super Co-Contribution scheme assists people that contribute after tax dollars into super. The scheme works by having the Government match the personal contribution with a super co-contribution payment to the super fund provided the individual’s income is below the current year threshold of $61,920. Noting this co-contribution amount can be as high as dollar for dollar up to $1,000 for those people earning less than $31,920 per year but does reduce over this income level.
The vast majority of the superannuation accounts of Australians are currently held in large Industry or Retail Superannuation Funds. However the past few years has seen a large growth in Self-Managed or Do-It-Yourself (DIY) Super Funds. It is estimated that DIY Funds now make up more than 30% or approx $400 billion of superannuation savings.
The growth in DIY funds over the years has been driven mainly by people wanting to control their own superannuation. This added control has many benefits which can include the flexibility to control costs, invest in specific assets and often direct property as well as estate planning benefits and flexibility around retirement.
However there are a number of issues that need to be considered before setting up a DIY fund as they are definitely not for everyone. In order to have a DIY fund the members of the fund must also be trustees of the fund. The responsibilities and obligations of Trustees of super funds are extensive and enforceable by the ATO who have had an increased focus recently on Trustees of DIY funds.