Superannuation is a vital part of the financial foundation for Australians planning their retirement. It’s more than just a savings account; it’s a long-term plan to ensure financial security once you stop working. Let’s explore the ins and outs of superannuation, from how it works to when you can access it and how it affects your eligibility for other retirement benefits.
What Is Superannuation?
Superannuation, often referred to simply as “super,” is a retirement savings plan designed to help Australians save for their post-work life. The majority of super contributions come from employers through the Super Guarantee (SG), which is a mandatory contribution based on a percentage of your salary. On top of that, individuals can make additional voluntary contributions to their super accounts, boosting their retirement savings.
When Can You Access Your Super?
The age at which you can access your super depends on a few factors. Generally, you need to reach your preservation age (which ranges from 55 to 60, depending on your birthdate) and have retired, or wait until you turn 65. You can also take advantage of a transition to retirement (TTR) strategy, which allows you to withdraw up to 10% of your super each year once you reach your preservation age, while still working.
In certain circumstances, such as severe financial hardship or disability, you may be eligible to access your super earlier than the standard age.
How Does Superannuation Differ from the Age Pension?
Superannuation is private money you’ve saved for yourself over the years, while the Age Pension is a government payment for those who meet specific criteria, including age and income/asset limits. The Age Pension helps ensure a basic level of income in retirement, but it’s not a replacement for the full financial independence that superannuation provides.
Does Superannuation Affect Your Eligibility for the Age Pension?
Once you reach the eligibility age for the Age Pension, your super balance will count toward the assets test. It may also be considered under the income test, depending on how you draw it. For example, if you convert your super into an income stream, the income it generates may be subject to deeming, which affects how your income is assessed.
What Are Deeming Rates?
Deeming rates are used by Centrelink to assess income from financial assets, such as superannuation, during the Age Pension income test. They assume a set rate of return, regardless of the actual income earned. Even if your assets generate higher income, it will not count beyond the deemed rate for pension purposes.
How Are Account-Based Pensions Treated?
If you convert your superannuation into an account-based pension, the balance is treated as an assessable asset under the Age Pension’s assets test. Additionally, the income from an account-based pension is subject to deeming for the income test, which ensures a consistent way of assessing the income you generate from super.
What About Lifetime Income Streams?
Lifetime income streams, like certain annuities, are treated differently than traditional super assets. For the Age Pension’s assets test, 60% of the purchase price of certain lifetime annuities is counted as an asset until age 85, or for a minimum of five years. After that, only 30% is assessed.
Are Super Withdrawals Taxable?
If you’re 60 or older, withdrawals from a taxed super fund, such as an industry or retail fund, are generally not included in your taxable income. However, payments from untaxed super funds (like some public sector superannuation schemes) may be taxable.
Can You Withdraw Super While Still Working?
In most cases, you must be retired to access your super. However, there are exceptions. For instance, you can access super at age 65 and continue working. Similarly, if you terminate employment after age 60 and meet the retirement criteria, you can access your super while taking on new work.
Can You Keep Contributing to Super After Retirement?
There are limits on contributing to super after retirement. Typically, individuals can continue contributing up to the age of 67, and even between 67 and 75, as long as they meet the “work test,” which involves working at least 40 hours over a 30-day period.
Additionally, if your total super balance is under $300,000 and you retired in the previous financial year, you may qualify for a one-time exemption to continue contributing to your super.
Once you turn 75, voluntary contributions to super are generally not allowed, though you can still receive the Super Guarantee if your employer contributes to your super.
Conclusion
Superannuation is an essential tool for securing a comfortable retirement. Understanding how it works, when you can access it, and its interaction with other retirement benefits like the Age Pension can help you make informed decisions about your retirement planning. Be sure to consult with a financial advisor to ensure you’re on track to meet your retirement goals.
