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Customer Education

Superannuation & Investments

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How to contribute to your Superannuation

• Introduction
• Who may contribute to superannuation?
• Types of contributions
• How much should I contribute?
• Consolidating your superannuation

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Introduction

Superannuation is designed to allow you to live comfortably in retirement by encouraging you to invest money during your working life. For many Australians, superannuation along with their family home will comprise the majority of their investments.

The Government has made superannuation more flexible and has introduced a range of tax concessions that make it an attractive investment for most Australians. These tax concessions apply to contributions, investment earnings and withdrawals (lump sum and pension payments) at retirement.

Due to Australia’s "ageing" population (lower birth rates than in the past as well as increasing lifespans) the Government is facing a major dilemma in its ability to pay age pensions in the future. As proportionately fewer working taxpayers support an increasing number of retirees, will the Government be able to afford to continue paying age pensions? Over the past two decades we have seen a gradual tightening of the rules that must be satisfied to allow an individual to qualify for an age pension. This means people need to consider saving over their working life to ensure they have a comfortable standard of living in retirement.

Who may contribute to superannuation?

Any Australian can contribute to a superannuation fund, provided they do so in accordance with superannuation law, which does stipulate some conditions around what contributions can be made over age 65. The following table summarises the general age based conditions for making contributions into a superannuation fund.

Your age	Who can contribute?
Under 65	You, your spouse and your employer.
At least 65 but under 70	You, your spouse and your employer, provided you have been gainfully employed for at least 40 hours during any 30 consecutive day period in the financial year. Your employer may make compulsory employer contributions.
At least 70 but under 75	You and your employer, provided you have been gainfully employed for at least 40 hours during any 30 consecutive day period in the financial year. The contribution must be received within 28 days of the end of the month in which you turn 75. Your employer may make compulsory employer contributions (this excludes superannuation guarantee contributions unless the payment relates to a period when you were under age 70).
75 and over	Your employer may make compulsory employer contributions (this excludes superannuation guarantee contributions).

Types of contributions

There are two types of contributions that can be made into superannuation:

• ‘concessional contributions’ which means they are tax deductible to the contributor (eg compulsory employer and salary sacrifice contributions and deductible contributions made by self-employed people) and are taxed by the receiving superannuation fund at up to 15%
• and
• ‘non-concessional contributions’ which means they are sourced from after tax income and are not tax deductible to the contributor. These types of contributions include personal and spouse contributions and are not taxed by the receiving superannuation fund.

Superannuation Guarantee (SG)

Employers must contribute a minimum of 9% of an employee's earning base to a complying superannuation fund. A complying superannuation fund is a regulated fund which meets the operational standards set down by the Government.

The good news for you is that your employer will assist you in funding for your retirement via the SG contributions they make. There has been much debate as to whether the SG will be sufficient to retire on. Hence, employees may be able to make further contributions themselves (ie after-tax contributions), or to factor extra contributions into their salary packages via a mechanism known as "Salary Sacrifice".

Salary sacrifice contributions

If you and your employer agree, you may be able to arrange for your employer to make additional contributions to your superannuation account from your before tax salary. This is called ‘salary sacrifice’. Salary sacrifice is classified as a concessional superannuation contribution.

Salary sacrifice is allowed up to age 74 and may be a tax-effective way of making additional superannuation contributions because the contribution made is generally taxed at only 15% instead of being taxed at your marginal tax rate (which may be considerably higher).

You need to monitor contributions made into your superannuation account against the maximum limit (or cap) permitted by the Government on concessional contributions. Concessional contributions will be capped at $25,000 for the 2009/2010 financial year, for those under 50 years of age. A transitional period applies for people aged 50 or over, to be able to contribute up to $50,000 annually until 30 June 2012. These caps may change in future years. Amounts in excess of these limits in a financial year (as identified by the Australian Taxation Office) will be taxed at 46.5%. This tax may be paid by the individual direct to the ATO, or can be withdrawn from the superannuation fund. Please note that excess over the concessional caps will be counted against the non-concessional caps.

Salary sacrifice contributions may also be liable for tax when you make a withdrawal from your superannuation account if you are under the age of 60

Self-employed

If you are self-employed, you may be allowed to claim a full tax deduction for contributions you make to your superannuation up to age 74. Self employed people can also elect to make personal non-concessional contributions to superannuation and may be eligible for a Government co-contribution payment.

Personal contributions

In addition to concessional contributions, you can also make personal non-concessional contributions into your superannuation account. If your employer agrees, regular personal contributions may be made via deductions from your after tax salary. You can also make a single ‘one-off’ personal contribution to help increase the benefits that you will receive when you retire.

If you are a low-income to middle-income earner, you may also benefit from Government co-contributions if you make a personal non-concessional contribution to your superannuation.

Non-concessional contributions made to superannuation will be capped at $150,000 for the 2009/2010 financial year. In addition, people under 65 years of age will be able to bring forward two years of contributions, enabling $450,000 to be contributed in one year, with no further contributions in the next two years. Exemptions to the non-concessional cap are government co-contributions, proceeds from sales of small businesses, and payments that relate to structured settlements or orders for personal injuries. These caps may change in future years. Non-concessional contributions in excess of this limit will be taxed at the top marginal tax rate of 46.5%. This tax will be imposed on the individual, who must withdraw an amount from their superanuation fund equivalent to the tax liability.

Government co-contributions

The Government co-contribution is a payment made by the Federal Government to the superannuation account of eligible employed and self employed people who make personal non-concessional superannuation contributions subject to the below criteria:

• have made a personal non-concessional contribution to a complying superannuation fund in the financial year
• have lodged their income tax return for the financial year
• have a total income (i.e. assessable income plus Reportable fringe benefits) of less than $61,920
• are not a temporary resident
• are less than 71 years old at the end of the financial year the contribution was made
• have earned at least 10% of their income for the financial year from carrying on a business, eligible employment or a combination of both, and
• have provided their Tax File Number to their complying superannuation fund.

For the 2009 - 2010 Financial Year, the Government will match a member's personal (non concessional) contributions at the rate of up to $1.00 for each $1.00 of member contributions. The maximum amount of co-contribution is $1,000 and is available to people on incomes of $31,920 or less. The maximum amount phases out for every dollar of income that exceeds $31,920 until it phases out completely when a person's income reaches $61,920. The minimum and maximum income thresholds are indexed every financial year. To assess if you are eligible and to calculate your co-contribution entitlement please click here

Spouse contributions

An eligible spouse contribution is a superannuation contribution made by one spouse into a superannuation account held by the other. The key advantage is that the contributor can obtain a tax rebate of up to $540 provided their spouse's assessable income doesn't exceed $13,800. An eligible spouse can be a legal spouse, de facto spouse or other person with whom the member is in a relationship where they are living together on a genuine domestic basis as a couple. If you wish to make spouse contributions, your spouse can complete the 'Personal Plan Application Form' in the ARC Master Trust Product Disclosure Statement and return it to us. It is the contributor's (ie the taxpayer's) responsibility to maintain a record of eligible spouse contributions made for the purpose of claiming the offset.

Other contribution types

Examples of other contribution types we accept are:

• Directed Termination Payments (relating to employer termination payments)
• Eligible proceeds relating to Small Business CGT Concessions; and
• Payments that relate to structured settlements or orders for personal injuries.

How much should I contribute?

The answer to this question can be complex and is influenced by a number of factors including:

• at what age do you wish to retire?
• how many years in retirement are you planning for?
• what are your expectations for retirement? - will you be content to "potter around" the garden or will you want to travel extensively, eat out at restaurants, renovate your home, replace household whitegoods, upgrade your car etc.
• will you own your own home in retirement?
• what other investments will you have in retirement? (In particular, what income will these other investments consistently produce?)
• what level of income do you require in retirement?
• will your spouse also have an income stream?
• what will be the level of pension provided by the Government?
• how much capital do you wish to leave for your dependants upon your death?
• what does the future hold for investment earning rates and inflation?

As you can see, there are many issues to consider and, in some cases, difficult to foresee. When determining the income that you will require in retirement, it’s useful to know that many experts consider a range of between 60 - 70 % of your pre-retirement income as a desirable amount. This is due to the fact that in retirement you will not incur some of your current expenses, for example, travelling costs to and from work, purchasing clothing for work and other work related expenses. Also, hopefully, by retirement any mortgage on your house should be paid off or close to being paid off and your children may not be financially dependent on you.

Your aim should be to accumulate sufficient superannuation and/or investments, such that your desired level of income is sustainable in retirement.

We suggest you contact your financial adviser for a complete analysis of your needs.  If you don’t have a financial adviser, we can put you in touch with one - contact one of our Customer Service Consultants on Freecall 1800 101 014, Monday – Friday 8.30-5.30pm (EST).

Consolidating your superannuation

On average, most Australians hold 3 superannuation accounts. This means:

• 3 sets of fees;
• 3 sets of paperwork; and
• 3 sets of hassle.

To make things easier for you, you may want to consider consolidating your superannuation accounts into the one account. Speak to your Financial Adviser to see if this approach is right for you.

To download a Transfer Authority Form, please click here or call us for a copy.

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