Superannuation funds are a great way to invest for your retirement since it can allow you to save gradually until you retire. These funds work in a similar way as life insurance policies or pension funds. It is a scheme constructed to encourage individuals to save for their own retirement as a solution to the increasing amount of workers that haven’t saved enough for their old age and the decreasing power of the State to spend for pensions.
One can join a superannuation fund in the place where they are employed. Meanwhile, you can also decide to join and contribute to a self managed superannuation fund or Do-it-yourself (DIY) funds. DIY funds are established for a small group of people which is usually less than 5. These groups are monitored by the Australian Tax Office. It is a trust fund, and being such, the fund members or contributors are its trustees which has the responsibility for the operation of their funds and in constructing and implementing an investment strategy. The money accumulated from its members will be for the sole purpose of providing for the retirement benefits of its members and not for the personal use of any of its members. This superfund is governed by super laws and the trust deed which is a legal paper that sets out rules for creating and operating the fund. The trust deed in this fund will specify the following:
- When contributions are allowed
- Availing of benefits
- Appointment of professional advisers like an auditor
- Winding up procedures
- The powers, duties and responsibilities of the fund’s trustees
- The rights of the members
- The fund’s objectives
- Who the trustees are
- Qualifications of a trustee
- Manner of appointment and removal of trustees
- Qualifications of members
This kind of superannuation is an arrangement which requires an enormous amount of time and investment skill to manage and operate profitably. The one who would lead setting up this kind of fund must be prepared to follow strict requirements stated in super laws. It is highly advisable to seek expert advice when setting up this superfund.
All kinds of superannuation funds are entitled to tax benefits such as lower income tax rate and other allowable deductions to contributions made. These funds also enjoy government benefits which even provide total permanent disability and insurance coverage for its trustees.
In general, it can be said that anyone can join a superfund even though you are not employed or you have a low income. If you don’t have a job or not earning enough, your spouse can contribute for you until you reach your retirement. Self-employed individuals can also join a super fund and claim a full tax deduction for every contribution made.
Since saving for the future is really important, you should not touch your super fund, and you are not supposed to even try to touch them until you are retired, or too ill to work. But, if you want access to all your access which includes your superannuation fund, you must need to understand the terms and conditions in a super fund. The terms and conditions in a superfund differ from one fund to another but they follow some similar basics such as:
- The preservation of age is the minimum age requirement before you can begin to access your superfund. The preservation of age differs from the year you were born. For those born after 1960, the preservation age is 60, if you were born before this year, you can check with your fund manager or the Australian Tax Office for more details.
- The benefits that you would want to access may be governed with a set of rules that determines when and how they should be released. The rules differ according to category: Preserved, Restricted non-preserved and unrestricted non-preserved. With this, you need to know what kind of benefits you want to release. The hardest to access are the preserved benefits. The benefits that can be released as long as your employer has paid your contributions and you’re terminated from your job are restricted non-preserved benefits. Meanwhile, the unrestricted non-preserved benefits are yours to spend whenever you want.
Finally, there are other important principles in a Super Fund. These will supplement all the knowledge you gathered from what was discussed earlier. It is always important to remember these:
- Your employer must contribute money to your super fund account on your behalf in compliance to superannuation guarantee laws.
- The contributions made by your employer and any concessional contributions you choose to make are taxed at a minimum rate of 15% when the contributions enter the super fund.
- If you make an after-tax contribution to your superfund, the government may put some tax-free money into your super fund depending on your level of income.
- The money you earn from your super fund investment is taxed no more than 15%.
- You will pay penalty tax if you make a super contribution exceeding the caps each year.
- You are free to choose the super fund you want. If you don’t choose, your employer chooses for you.
- Your fund must send you regular reports on its performance.
When you retire on or after the age of 60, you pay no tax on your superfund benefits, unless you serve as a long-term public servant.