Your Guide to Retail Superannuation Funds
There are various types of Superannuation options in Australia, such as Self-Managed Super Funds, Corporate Super Funds, Industry Super Funds, Public Sector Super Funds and Retail Super Funds.
In this guide, we will cover the main features of Retail Superannuation Funds.
What is a Retail Superannuation Fund?
Retail Superannuation Funds are offered by banks, financial institutions and insurance companies for the purpose of providing a vehicle for you to save for your retirement. They are very similar to UK Personal Pension plans as you have access to a wide range of investment choices, and when it comes to retirement (your preservation age), you can flexibly access your funds.
The day to day management and administration of a Retail Superannuation Fund is handled by the scheme provider which is also similar to UK Personal Pension plans.
Contributing to your Retail Superannuation Fund
When contributing to your Superannuation Fund, your contributions will be classed as either a ‘Concessional’ or a ‘Non-Concessional’ contribution. The difference between these two types of contribution is purely down to the tax treatment of each.
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- Concessional Contributions – These are classed as ‘Deductible Contributions’ because the tax is deducted from the fund before the contribution is applied to your Super Fund. Examples of deductible contributions can be personal or employer contributions. The Superannuation provider will deduct tax at the ‘concessional’ rate of 15% and pay the Australian Tax Office (ATO) on your behalf. If you earn over $250,000 then you may be required to pay an additional 15% tax under the ‘Division 293’ tax rule. The maximum ‘concessional’ contribution you can make, each financial year, is $27,500. However, from July 2018, a new rule was introduced that allows individuals who have a super balance of less than $500,000, to carry forward any unused allowance for up to 5 years.
- Non-Concessional Contributions - These are contributions where a tax deduction is not claimed. Examples of these can be transfers from an overseas pension scheme, spouse contributions, government co-contributions and some personal contributions where a tax deduction has not been claimed. Currently, the maximum non-concessional contribution that is permitted without penalty is $110,000. If you are under the age of 75, it is also possible to ‘bring forward’ a further two years of the allowance, providing you with a total of $330,000. Any excess contributions above the limit will be taxed at 45%. If your total superannuation balance is greater than $1.7 million at the end of 30 June of the previous financial year, any non-concessional contributions will be treated as excess non-concessional contributions. If your balance is greater than $1.48, million, it will affect the bring forward amount that is available to you.
- Transfers from Overseas Pension - A transfer from an overseas pension scheme is classed as a non-concessional contribution and the rules, noted above will apply.
- Superannuation Guarantee - Under Australian law, it is also a requirement for employers to contribute to your Superannuation fund if, you are over the age of 18 and earn a minimum of $450 per month. This is known as the Superannuation Guarantee (SG). If you are under the age of 18, then you must work for a minimum of 30 hours per week to be eligible for Superannuation Guarantee contributions. The rate of the Superannuation Guarantee currently stands at 9.5% of your salary, which will increase to 10% by July 2021.
For more information on the Superannuation Guarantee (SG), see our guide HERE!
Investing with Retail Superannuation Funds
Aside from making contributions to your Superannuation fund, the other major contributing factor to growing your fund is the investment performance of it. Therefore, it is fundamental that you select a suitable investment strategy in order to grow the fund as much as possible. Investments will fluctuate in line with market movements so there is always the potential for your value to drop, as well as go up. It is for this reason that we would always encourage you to seek professional investment advice if you have little or no knowledge of the investment markets.
Retail Superannuation Funds offer you a wide range of investment options such as :
- Global Stocks and Shares
- Managed Funds
- Deposit / Cash Based Funds
Our Australian Expatriate Superannuation Fund offers investment options available in AUD, GBP and USD.
A full list of the funds available with our product can be found in our Investment Guide.
Withdrawing Funds from your Retail Superannuation Fund
Under current legislation, you are not allowed to withdraw funds from your Super until you reach your ‘Preservation Age’ and provided you meet a ‘condition of release’. Your preservation age depends on when you were born, as detailed below:
|Date of Birth||Preservation Age|
|Before July 1960||55|
|July 1960 – June 1961||56|
|July 1961 – June 1962||57|
|July 1962 – June 1963||58|
|July 1963 – June 1964||59|
|After June 1964||60|
Once you reach your preservation age, if you meet one of the following ‘conditions of release’, then you may access your funds:
- You are retired
- You have begun a transition-to-retirement income stream
- You have ceased an employment arrangement on or after you have reached age 60
- You are 65 years of age.
In certain circumstances, funds can be accessed prior to your preservation age under severe ‘Financial Hardship’ rules. Your financial position would be assessed by the Australian Tax Office (ATO) and if you met the following eligibility conditions then you would be entitled to an early release of your funds.
- You are unable to afford a payment of living expenses, for example, mortgage or rent payments, bills, medical expenses.
- You have been receiving government welfare payments for a minimum of 26 consecutive weeks and are still in receipt of these payments when you apply for early release of your superannuation funds.
You may also access your super early in the event you become terminally ill or become permanently disabled. Again, it would be the Australian Tax Office (ATO) who would assess your condition before deciding whether or not to grant you early release of your funds.
Retail Superannuation Tax Treatment
Generally speaking, the tax treatment of your Superannuation Fund is broken down into 3 stages:
Stage 1: When you contribute to your Super
As mentioned above, contributions can be split into two main categories, Concessional and Non-Concessional contributions.
If you make a personal contribution to your Super, this will be classed as a ‘Concessional’ contribution and a tax charge of 15% will apply to it. The retail superannuation provider will deduct the tax from the contribution and pay this to the Australian Tax Office (ATO) on your behalf, before applying the rest of the contribution to your fund.
If you are transferring an overseas pension scheme, this would be classed as a non-concessional contribution. Tax would be applied to the applicable fund earnings (investment growth) achieved from the date you became and Australian resident, to the date you transferred your overseas pension scheme into Australia. A fixed tax rate of 15% would apply to this, which the retail superannuation provider would deduct and pay to the ATO on your behalf.
Stage 2: The investment growth within your Super
When you are contributing to your Super and it is benefiting from investment growth, this is known as the ‘Accumulation Phase’. The investment earnings (growth) is generally taxed at 15% and this will also be calculated and paid on your behalf by the retail super provider. This will be in the form of automatic deductions from your fund.
You should also be aware that if you switch funds within your super you may be liable to Capital Gains Tax if a gain has occurred within the fund you are switching out of. Capital Gains Tax is charged at 15% if the fund has been held for less than 12 months. For funds held longer than 12 months, a 5% tax deduction will apply meaning that only a 10% charge will apply.
Stage 3: When you withdraw funds from your Super.
Once you reach your preservation age, provided that you meet a ‘release condition’ you can flexibly withdraw funds from your Super. Whether you choose to do so as a lump sum or in the form of regular income payments, you should be aware of the potential tax implications. Withdrawing funds from your Super once you have reached your preservation age is known as the ‘Pension Phase’. In UK terms, this is the same as ‘Income Drawdown’.
There are various scenarios to consider where tax is treated differently, depending on your age.
If you withdraw funds before your preservation age based on special circumstances, the tax will be applied at 20%, which also includes a Medicare Levy.
From your preservation age to age 60, the tax on the withdrawal is 0% on the first $205,000. Withdrawals above this threshold are taxed at 15%.
Any withdrawals after you reach age 60 will generally be tax-free.
The tax treatment of superannuation funds in Australia is a complex area so you should always seek professional tax advice if you are unsure of your position or if you do not understand the rules. We are not authorised to provide you with any advice regarding your tax position.
Key Benefits of Retail Superannuation Funds
Here are some of the key benefits of investing your funds in a Retail Superannuation.
- The management and day to day administration of the fund are handled by the Retail Superannuation provider. This removes the administrative burden away from you.
- From the age of 60, the benefits are paid out tax-free.
- You may flexibly draw your pension benefits during retirement.
This article does not contain personal or financial advice. It is provided for general information only and does not take into account your personal objectives, financial situation or needs. IVCM is not authorized to provide you with any personal or financial advice.
If you require financial any advice then you must make sure that you obtain advice from a suitably qualified financial adviser.