Superannuation is a Government initiated savings scheme with tax benefits that aims to help provide an income stream in retirement for Australians.

Employers in most cases are required to contribute to superannuation on behalf of their employees.

Superannuation funds are basically investment funds that have a number of restrictions.

There are many different types of superannuation funds that can be separated into the following basic categories:

  • Government superannuation funds – for Government employees
  • Self Managed Superannuation Funds – for people who wish to have the maximum control
  • Retail Superannuation Funds – usually offered by large banks or financial instituions
  • Industry Superannuation Funds – usually union backed or supported

These can be further broken down into two types; defined benefits and accumulation funds.

Defined benefit funds typically pay an income stream or make available a lump sum based on a set formula. With accumulation funds the final amounts are simply the account balance that ‘accumulates’.

Some employers, typically state or federal government organisations, are allowed to dictate which super fund your contributions go to. If you are not bound by these restrictions you can choose your own super fund.

Superannuation Tax

Contributions

Contributions to superannuation fall into two categories, pre tax and post tax. Employer contribution are taxed at 15% when they enter the superannuation fund. Monies that you might contribute from your own bank account or other savings are not taxed on entry.

Funds that are contributed to super by your employer have not faced any tax imposition by the Government until they enter the super fund and are hence called pre tax contributions. Money you have received as a result of wages or other payments will have income or other taxes deducted already so if these are then contributed to super these would be post tax contributions.

Earnings

Earnings on assets within superannuation funds are taxed at 15% less any imputation credits from shares if relevant.

Disclaimer: Superannuation laws change regularly. You should check all facts before making any decision. It is highly recommended that you consult a financial planner before taking any action in this area.