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Superannuation in Australia: All You Need to Know

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The key to an amazing retired life is stability. However, inadequate financial planning and poor decisions can harm your stable life. That’s where your superannuation plan comes in.

Whether it’s living in the safety of your home and enjoying quality time with your family or doing the adventures you couldn’t do in the past; financial stability plays a crucial role in your decisions post-retirement. 

Superannuation, or simply known as “super” is a guaranteed payment scheme you’ll receive once you’ve retired from your job. In this article, we’re going to discuss everything you need to know about superannuation in Australia to help you plan your finances better.

What is Superannuation?

Superannuation is a retirement savings plan that’s guaranteed to every employee once they reach the end of their tenure. Generally, the employer creates the superannuation plan and pays a certain percentage of their salary into it. 

In Australia, the fixed superannuation rate, known as ‘super guarantee’ is 9.5% of the monthly salary of the employee before-tax. However, you can make decisions that can have an impact on your plan in the future.

Eligibility of Superannuation in Australia:

Anyone who has worked in Australia is eligible for superannuation schemes by their employer. However, they must be 18 years older or above and receive more than 450AUD per month before tax. However, suppose someone earns a similar amount while being under the age of 18. In that case, they are eligible for superannuation as well if they work at least 30 hours a week.

However, in the case of contractors and self-employed individuals, the rules for super are slightly different. For eligible contractors, they can apply for their superannuation plans through the employer they are contracted to. They cannot apply through other companies or financial organisations.

For those who are self-employed, they are not eligible for super funds through any employer. However, they can create their fund by making personal investments. In this case, they’ll be entitled to tax deductions and offsets based on their earnings. 

Payment will be made to the foreigners after they leave Australia if they’re eligible for superannuation during their stay in Australia – this is known as Departing Australia Super Payment (DASP). However, superannuation for foreigners can be subject to tax based on the rules of their home country. 

Choosing your Super Plan:

In most cases, your employer will choose the super fund for you. However, you can select your own fund if you want as well. Discuss with your employer about your super funds and decide on whatever suits you best.

Generally, you can choose any of the employers’ default fund, specialised funds based on your area of work or a self-managed super fund (SMSF). However, if you don’t choose one for yourself, your employer will choose the default fund for you. So, we always recommend discussing the technicalities of your fund in the first few weeks of your new job.

doll of 2 old men set up on a stack of coins on top of notes talking about their superannuation in Australia

Contributing to Your Own Super Plan:

Although your employer will pay a percentage of your earnings into your superannuation fund, you can choose certain investment plans to contribute to your retirement plans yourself.

If you want, you can invest a portion of your salary into your super fund. The Australians refer to it as “Salary Sacrifice” since you’re investing directly from earnings. 

However, unlike guaranteed super funds, salary sacrifices are susceptible to tax. Once you reach the tax cap, you have to pay taxes based on your payments. 

For people under the age of 50, the tax cap is 30,000AUD per year, and for individuals above 50, the tax cap is 35,000AUD annually. We recommended that you contact an expert before choosing a salary sacrifice plan to avoid excessive taxes.

Accessing Your Super Plan:

You cannot access your superannuation plans until you meet certain conditions. These include reaching a certain “preservation age” which is generally 68 years old.

However, if you made extra contributions to your superannuation plans in the past and you’re planning to buy your first house, you can deposit your additional contributions in the First Home Super Saver Schemes. 

Furthermore, many companies try to scam their customers by providing them schemes through which they can access their super funds before the preservation age. Keep in mind, there are completely illegal and will result in hefty fines, and jail time based on the severity of your actions.

Difference Between Superannuation Plans and Retirement Plans:

People often get confused between retirement plans and guaranteed super plans because of the way they’re presented. Most retirement plans would present themselves as “guaranteed” or “secured payments” for the rest of your life.

However, superannuation plans are significantly different from retirement plans. Retirement plans are subject to market risks so that you might lose your savings based on market crashes or recessions. But, your superannuation plan is guaranteed payment regardless of external financial conditions.

Using Your Superannuation Plan for Insurance Schemes:

In most cases, you can use your super plan to pay your insurance schemes. Super plans are generally taxed lower so you can save a significant bit of money by paying your insurance costs with your super plan.

However, you must fulfil some eligibility criteria to be able to use your super plan for your insurance. These include being 25 years or older and having a minimum of 6,000AUD in your super account. These criteria are in place to make sure your super accounts don’t dry out due to insurance schemes.

Superannuation in Australia connects people to their ideal retirement savings plan like shaking hands

Conclusion:

Retired life should be peaceful. However, dealing with financial issues at your old age can be very troublesome and stressful. 

Your superannuation funds can play a crucial role in your financial well being once you retire. However, it requires a bit of your own time and effort as well. Understanding the ins-and-outs of your super scheme and making decisions can decide your future.

So, why wait? Sit with your financial planner and set up the right superannuation plan for you!

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