Superannuation (or Super) is money set aside throughout your working years to provide for retirement. The money is paid in by your employer and set aside under the care of a Super Fund until you reach preservation age. The preservation age is currently 60 years old, but is likely to go up.
Super for those entering the workforce today is a “defined contribution” scheme. This means that once your employer pays in the compulsory contribution, you and your Super Fund bear the risk of investing wisely for your future retirement. If you invest poorly, your employer is under no obligation to top up your funds – in contrast to how a “defined benefit” or pension scheme works.
The Superannuation Guarantee, currently 9.5% of your ordinary earnings, is the amount that employers must pay to your super fund. This is paid in addition to your wages. Contributions are calculated on your earnings including shift penalties for nights, weekends and public holidays, but overtime and CME is not included. You should check that you receive the correct Super contributions, especially for your public holiday earnings – otherwise you’re missing out on 9.5% of your wages!
Tax benefits of Super
Why bother locking up your money until you’re 60? Tax savings of course!
Concessional contributions to Super, whether compulsory or additional, are taxed at 15%. If you earn more than $37,001 your marginal tax rate is 34.5% – so every dollar of Super contribution is a 19.5% tax saving.
You can make additional contributions to your Super Fund through your employer (“salary sacrifice”), through your salary packaging provider, or directly by bank transfer. Directly is probably the simplest for most people. You trade off an upfront tax deduction and getting to keep more of your hard-earned cash, in return for not being able to access the funds until 60+ years old. However, there is a new scheme introduced in the 2017 Budget that allows early withdrawals from super to buy a house – the First Home Super Saving Scheme. When you make extra contributions, keep in mind the $25000 annual cap on concessional contributions.
These are contributions made to your Super fund of earnings that you have paid income tax on. For most doctors, these are a poor choice and you would be better off making a concessional additional contribution instead.
Read on for more detail about choosing a Super Fund