Superannuation for New and Existing Employees

If you are aged between 18 and 70 and work on a casual, part-time, full-time or contract basis mainly for labour and earn more than $450 per month, then you are entitled to an additional 9% of your normal earnings be paid into a complying superannuation fund for your retirement.

The contributions which your employer is obligated to make must be made into a complying super fund within 28 days of each quarter. While many employers pay monthly, there is no obligation to do so.

A person has unconditional access to their super when they reach 65 or access with restrictions if they have reached the current allowable retirement age of 55. This is also referred to as 'preservation age'. If you were born before 1st July 1960 your preservation age is 55. The government has decided to increase the preservation age to 60 because the life expectancy of most people has also increased.

To access your super earlier than your 'preservation age' you must meet a 'condition of release'.

It is possible to access your super if you qualify under any of the following:

  • Compassionate grounds
  • Financial hardship
  • Temporary or permanent disability
  • Death
If you are diagnosed with a terminal illness likely to cause death within 12 months you will have access to your super as a lump sum tax free regardless of your age. Accessing your super early under any other condition of release may result in additional tax being deducted from your payment.

When you reach retirement age and want to access your super, you generally can choose to receive an income stream for retirement or a lump sum or a combination of both.

Can I make contributions to super myself?

Yes you can. If you are under 65 you can contribute to super regardless of whether you are working or not. If you are 65 or older you must meet the 'work test' to make a contribution to super.

The 'work test' requires you to complete 40 hours of gainful employment in a 30 consecutive day period before being eligible to make a contribution.

What type of contribution can I make?

There are two types of contributions which can be made in to super. Pre-tax or after-tax. The contributions your employer makes are regarded as pre-tax contributions.

If your employer is agreeable you can also contribute additional funds by sacrificing part of your salary. This is known as 'salary sacrifice' and these contributions are also treated as pre-tax.

Pre-tax contributions are treated as assessable income when made to any super fund. The super fund is taxed up to 15% on these contributions which is passed on to each individual member of a super fund. If you are under 50 and the total of your employer and salary sacrifice contributions exceed $25,000 in a financial year then the excess will be taxed at an additional 31.5% (46.5% in total)

If you are 50 or older and the total of your employer and salary sacrifice contributions exceed $50,000 in a financial year then the excess will be taxed at 31.5%. (46.5% in total)

These limits are applicable for the current 2011/12 financial year but can change through indexation and government review.

You can also make an after-tax contribution to super.

As the name suggests an after-tax contribution refers to a contribution made with after-tax income. After-tax contributions are not taxable within a super fund so you can make these contributions tax free.

If you are under 65 you are currently able to contribute up to $150,000 each financial year (2011/12). If you exceed $150,000 in any year your contributions are allocated towards the limit for the next financial year. You are allowed to bring forward 2 future years limits without penalty, meaning that you can contribute up to $450,000 in one year. If your contributions exceed $450,000 in the current financial year or over the following 2 years then the excess will be taxed at 46.5%

If you had any excess pre-tax contributions then these are counted towards your after-tax contribution cap limit.

Choosing a super fund

Generally, employees have the right to choose any complying super fund they wish to receive employer contributions.

Some employees are not able to choose a fund and they include:

  • employees covered by an employment agreement which specifies its own super fund
  • employees whose employer(government) operates an unfunded puclic sector fund
  • government employees who are members of the Commonwealth Superannuation Scheme or Public Sector Superannuation Scheme.
  • employees who are members of a defined benefits fund.
If you are eligible to choose your own super fund but elect not to, then your employer will make contributions to their nominated 'default' super fund. You can nominate your own choice fund once each year

Can I choose where my money is invested?

Yes you can. Generally, every super fund will have a choice of investment options within their fund which a member can choose from.

If you do not choose your own investment option then your super is invested into the 'default' investment option.

For most super funds, the default option is a mix of different investments which may have exposure to shares, property, fixed interest investments and cash. The default investment option is chosen by the trustees of the super fund and generally suitable for people that have a medium to long term time frame for investing. In most cases this means a minimum of 5 years or more.

Most super funds will have other investment options available which may be suitable for short term, long term or a combination of both. Choosing the right investment option is important depending on your time frame. All super funds should have an investment choice guide or product disclosure statement which provides you with details about all the investment options. If you are unsure what is the best investment option then seek financial advice which may be available direcly through your super fund or by consulting an external financial adviser.

Insurance options

Generally, most or all super funds will offer death cover insurance. Many will also offer Total Permanent Disability (TPD) cover and Income Protection insurance.

Death cover provides a lump sum payment in the event of your death which is added to your account balance and avaialable for distribution to your nominated beneficiaries.

TPD cover provides a lump sum payment to you in the event your are unable to work again in any occupation. It is designed to replace your future income and provide you and your dependants with a means to meet your living needs.

Income Protection insurance is designed to pay you a monthly benefit normally to a maximum of 75% of your gross income in the event your are unable to work because of injury accident or illness. Income protection policies will also have a waiting period like 30 or 60 days before you are eligible for any benefits. They will also have a maximum benefit period of 2 years but many will also pay until age 65.

The insurance cover provided within super funds may be a 'default cover' which is provided on first joining the fund. The default cover is normally a minimum level of cover based on a persons age. In some super funds it is compulsory to retain a minimum level of cover. Most super funds will allow you to increase, decrease or cancel any insurance cover.

The cost of insurance is an expense which is deducted from your super fund. There is a misconception by some employees that insurance is provided free by their employer which is not the case.


Rob Bourne has been involved in the financial services industry for over 35 years. As a practising financial adviser he focuses on the need for practical and down to earth financial education. The aim is to educate people through financial education so they can take control of their own financial future. Visit Rob's website here for more information on business opportunities, investing and financial education or the complete guide to superannuation a...

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