Most people spend the major parts of their lives working and earning a living, providing for their family, children and own self. The condition and fitness of our body do not always remain in the optimum state and our ability to move around, to think sharply and to work effectively slowly decreases with time. There comes a time in life when people need to stop working and enjoy the rest of their lives peacefully without having to take the stress of working. To support people in retirement, a financial arrangement is done from the time they start working and that is known as superannuation. We will learn more about the basics of superannuation
What is superannuation?
Often called ‘Super’ in short, superannuation is the money that is saved gradually from one’s working life and this savings is gathered up over a long period of time to enjoy later in life after retirement to spend just like regular income without having to work. At present, the expected time duration of a Super an Australian is expected to get around retirement is approximately 20 years. This simple method is very helpful and effective, and the more money that is saved during working years, the more money will be
available after retirement.
How does Superannuation work?
Normally, the employer pays money into a super fund for every employee and that is managed by a super
fund. A certain percentage of the employee’s income is put into the fund which includes bonuses,
commissions, loadings etc. It is an ensured policy because that’s the law. The employee can choose to add
more money in the super account which will lead to more money during retirement. Self-employed
persons will be able to choose the percentage of the money they want to keep separately.
Now, over this long period of time, the super fund grows as the contributions keep adding up and it is
invested for further growth. To ensure the availability of Super at the right time and in the right
authentication, the government has set laws and regulations on how and when a person will be able to
access their Super fund.
In general, a person has to wait until retirement to be able to get access to their super fund. The minimum
age for availing tax-free super is 60. After retirement, a regular income flow can be generated from the
super fund for a more comfortable spending. A large amount can also be withdrawn but it shouldn’t be
done because money for the future should be kept at hand to avail when needed. A government pension
scheme can also be availed and combined along with the Super fund. By default, employers manage a
super fund for its employees but it’s better to communicate and be clear about it. The option for selecting
a fund of choice is available.
Limits and caps for concessional and non-concessional contributions
Contributions to the Super fund that is done before tax are called concessional contributions which can come from Guaranteed super contributions, personal tax-deductible contributions, and salary sacrificed contributions.Together they are called concessional contributions and there is a limit for this. A single concessional contribution is capped at $25,000 since 1st July 2017 which applies for all age groups.
Contributions made from after-tax dollar are called non-concessional contributions and this is now capped at $100,000. The bring-forward cap is at $300,000. This bring-forward cap enables an Australian to bring forward a maximum of 2 years of non-concessional contributions and make up to 3 years’ worth of nonconcessional contributions in one year, given that the age is under 65.
Another notable change which is in effect since 1st July 2017 is that a person cannot make nonconcessional contributions if the total super fund balance is above $1.6 million. Going above $1.4 million starts putting in restrictions.