Clays Financial Services Blog

Getting to know your super

Monday, February 28, 2011
Australia’s world class retirement savings system means every Australian needs to become conversant with their superannuation. For many of us, the rules and regulations around superannuation are confusing and the changes that occur can make it hard to keep up. Here are some important things you should know to help you to better understand your superannuation and the importance of planning for your retirement.

Item 1:
Superannuation is not an investment
Superannuation is not itself an investment - rather, it is a vehicle designed to make investing for retirement more attractive by the use of tax concessions.

Most super funds offer members a choice of how they invest. These can range from conservative options invested mostly in cash and fixed interest to highly aggressive options invested exclusively in shares.

The media often add to the confusion about super fund performance results with headlines such as ‘Super gets returns of 15%’ or ‘Your super goes backwards’. The inference is that all super funds are the same, which is not the case. Usually, the media is talking about balanced funds in super, often the default investment option when members make no choice themselves. However, even balanced funds are not all the same. The balanced option in one fund may have 70% invested in growth assets, whereas the balanced option in another fund may have only 50% invested in growth assets.

Item 2:
Up to age 65, anyone can have super
In the past, superannuation was only for the employed. The restrictions on who can contribute to super have been relaxed over the years and from 2004, anyone under 65 (whether they are employed or not) has been able to put money into super.

This provides good opportunities for members who are no longer working to put extra money into super before starting an income stream, as well as for people without super to save inheritances or other windfalls in a tax advantaged structure.

Item 3:
Super is tax free from age 60, but retirement comes first
When the major super changes came into effect from 1 July 2007, the headlines said
’Super is free from age 60’. Some members misinterpreted this to mean that they could claim their super tax free at age 60.

To be able to access super as a lump sum, a member must satisfy a ‘condition of release’. Usually this will mean they have satisfied a Superannuation Industry (Supervision) Act 1993 (SIS Act) retirement definition. The three definitions are:

• To have reached age 65.

• To have left a job after age 60. This can be any genuine position of gainful employment. It does not have to be the person’s main job.
• To have reached preservation age (currently 55) and have declared an intention to never work again. The member can change their mind and return to work but if they abuse the rule there may be tax penalties.

Item 4:
Super will not automatically be dealt with by a Will
Many people think that estate planning means having a Will. While a Will is very important, super will not automatically be paid into the member’s estate. Superannuation fund trustees are required to pay death benefits to a member’s dependants. The trustees will make enquiries into the deceased’s circumstances and will pay the money to the member’s estate only where they cannot identify any dependants.

Some funds allow a member to nominate a ‘preferred’ beneficiary to receive their benefit on death. They can nominate for the money to go to their estate but the trustees are not bound by this preference. Some funds allow a member to make a ‘binding’ nomination where you can nominate a beneficiary. The super fund trustee is then bound to pay the proceeds to the nominated person.

Depending on the member’s circumstances, there can be advantages and disadvantages of having super paid to their estate. A key role for an adviser is to help the member make the appropriate decision as part of a comprehensive estate plan.

Item 5:
Insurance in super can carry on between jobs
One of the traps of having life and TPD insurance in a super fund occurs when the employee changes jobs. The cover may continue for a limited period (say 30 or 60 days) and then cease or cover may cease if contributions are not paid into the fund.

Many funds offer a ‘continuation option’ that allows the member to continue the same level of insurance cover in a personal policy without going through the normal underwriting process - medicals, blood tests and so on. Funds may have different rules but often:

• The continuation of the life cover will require just a short health statement.

• The continuation of the TPD cover will require a short health statement and an employment declaration.

The continuation option will only be valid for a limited time - 60 or 90 days after leaving employment so it pays to see an adviser promptly.

These are just some of the things you should know about your superannuation. Your Matrix adviser is happy to help with any questions you may have.

Disclaimer: This blog contains general information and advice only. It is provided by Matrix Planning Solutions Limited (ABN 45 087 470 200. AFSL No. 238256). As the particular circumstances and needs of individual investors may vary greatly, the information herein should not be used as a substitute for personalised advice. You should read the product disclosure statement before investing in any product Whilst every effort has been made to ensure the information is correct, its accuracy and completeness cannot be guaranteed, thus Matrix Planning Solutions Limited cannot be held responsible for any loss suffered by any party due to their reliance on the information or arising from any error or omission.