Week 6 Lecture 7 Superannuation Flashcards
Superannuation
Is the accumulation of a sum of money to fund retirement income. Superannuation has changed markedly over 25 years as result of:
- compulsory contributions
- taxation concessions on contributions
- taxation benefits on withdrawals
Three pillars of superannuation policy
Tier 1: a taxpayer funded social security pension which is means tested (a safety net)
Tier 2: compulsory employer contributions to superannuation for employees
Tier 3: tax incentives for voluntary contributions to superannuation
Why the need for superannuation
Australians are living longer and the baby boomers who were born in the years after work world 2 are not reaching retirement age. Australia’s population is getting older
Accumulation funds and defined benefit funds
Accumulation funds:
Most common type of account. Balances increase with contributions and (positive) investment returns. Investment risk is borne by the individual
Defined benefit funds:
Contributions are made by an employer into a pooled fund designed to meet the benefits accruing to members, risk is usually borne by the provider
Concessional and non-concessional contribution to superannuation
Concessional:
Contributions are not taxed by the employer and are taxed at 15% when they enter the superannuation fund compared to the individuals marginal tax rate. Since 1st July 2017 contributions capped at $25,000 per year
Non-concessional:
contributions are when the individual contributes their own after tax money (savings) into superannuation. These contributions are not taxed by the superannuation fund because tax has already been paid or deducted from the money used to make the contribution. Capped at $100,000
Superannuation contributions
- People ages 65 under can contribute without restriction
- Between ages 65 and 75 the member must be gainfully employed at least on a part-time basis.
- Greater than 75 the only contributions allowed are employer compulsory/mandated contributions.
The superannuation guarantee scheme
Employers must contribute 9.5% of employees salary to a superannuation fund. contributions must be made quarterly. SG to increase to 12% by 2027-2028. The ATO administers the scheme.
Salary Sacrifice
A salary sacrifice arrangement is also commonly referred to as salary packaging or total remuneration packaging. it is an arrangement between an employer and an employee, where the employee agrees to forgo part of their future entitlement to salary or wages. This is in return for the employer providing them with benefits of a similar value.
Government Co- contributions
Government initiative that aims to assist low to middle-income earners save for their retirement.
Low to middle-income earner and make a contribution to their super fund individuals may be eligible for a government co-contribution of up to $500.
If your total income is equal to or less than $37,697 in the 2018/19 financial year, or $38,564 in the 2019-20 financial year, and you make after-tax contributions of $1,000 to your super fund, you’ll receive the maximum co-contribution of $500.
Withdrawing from superannuation in pension mode.
If contributions and earnings taxes (15%) have been applied during your accumulation phase. then after the age of 60 you can withdrawal a lump sum tax free. The lump sum could be the entire amount. If money remains in pension mode you must at least take the minimum pension amount:
54 -64: 4%
65 - 74: 5%
75 - 79: 6% and so on
