AUSTRALIAN SUPER (Aged Pension)
The Australian Super (“Pension”) system is different to many pension systems throughout the world.
There are Seven Major Characteristics of Australian Super:
1. Compulsory Contributions: At present, 9% of your salary must be contributed to your Super fund by your employer on an annual basis. This rule applies to ALL employees and employers.
2. Preservation: Typically, Super can not be accessed until your reach retirement age at 65.
3. Taxation Advantages: While the tax implications on Super are complex, there are generally significant tax benefits of investing through the Super domain.
Contributions are taxed at 15% (instead of your marginal tax rate of up to 48.5%).
The normal earnings are taxed at 15% and
any capital gains in your Super can be taxed as low as 10%.
4. It's Your Investment: The Australian Super system, typically provides you with more control over your Super than any other country in the world.
Whilst there are some restrictions on what type of investments you can make, and your employer may dictate a specific fund that holds your Super (employer contributions), you have a broad range of investment options and styles that you can implement to suit your needs and objectives.
The freedom of choice may range from choosing an investment style within a Super fund, to investing in property, direct shares, managed funds, and other investments that you select and feel comfortable with..
5. Lump Sum: In Australia, Super benefits may be taken at retirement or upon meeting another condition of release, in one of the following ways:
- As a pension; or
- As a lump sum; or
- As a combination of both lump sum and pension
Unlike the UK, all Super benefits are able to be taken as a lump sum if so desired.
6. Undeducted Contributions: Super has a number of components. Each component contains different taxation regulations when you draw on your superannuation in retirement.
The most tax effective component within Super is undeducted contributions. Undeducted contributions are not taxed upon withdrawal. As a result, you are able to take all of your undeducted contributions as a lump sum and pay no tax.
The advantage for people transferring UK Pension benefits is that the Australian Government has no way of classifying your pension benefits from the UK as anything other than undeducted contributions. The advantage of this for a UK Pension transfer is that:
- All of the amount transferred is classified as an undeducted contribution; and
- As an undeducted contribution, you are able to take the amount of your original UK Pension transfer as a lump sum tax free upon retirement.
So, if you transferred A$50,000 from the UK Pensions to Australian Super, you could take the A$50,000 as a tax free lump sum upon retirement.
7. Superannuation Upon Death: Upon your passing, Super in Australia may be passed onto beneficiaries:
- Through your will; or
- By nominating beneficiaries with your Super fund.
Unlike other countries in the world Australia recognises the importance of enabling Super to be passed to spouses, family members and other beneficiaries. This issue should be considered with your entire estate plan and will.
Under the Super system, death benefits can be paid as a lump sum or a pension. This is particularly advantageous if you wish to provide for your spouse or for minor children who may require financial assistance.