Frequently Asked Questions

How do you choose between pensions and annuities?

Both allocated pensions and annuities have their advantages and disadvantages, but the good news is you don’t necessarily have to choose one or the other.

For example, depending on your circumstances and after consulting your financial adviser, you could use some of your super lump sum to buy an annuity and the rest to start a pension account. 

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What is salary sacrifice superannuation?

Salary sacrifice sounds painful, but if you’re employed it’s probably the easiest way of growing your super. It involves drip feeding regular amounts into your super from your gross earnings (ie from your before-tax income).  Salary sacrificing even small regular amounts can make a surprising difference over time.

The benefit of salary sacrifice is that contributions are only taxed at 15%, compared to your marginal tax rate of up to 46.5%.

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What is the superannuation guarantee?

Superannuation Guarantee (SG) contributions are the compulsory contributions made by your employer. Currently the minimum level of SG contributions is the equivalent of 9.5% of ‘ordinary time earnings’, but this will gradually climb to 12%. 

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What are superannuation concessional contributions?

These are contributions made from your before-tax income. They include employer Superannuation Guarantee contributions, additional employer contributions (salary sacrifice) and contributions made by the self-employed for which they claim a tax deduction. 

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Does superannuation get taxed?

Yes, super is taxable. Your super money is taxed when it’s paid into your account, on investment earnings while it’s in your account, and (depending on your age and circumstances) when you eventually take it out of your account. 

But one of the best things about super is that you’ll almost certainly get hit for less tax than you would by having your savings in a bank account or invested directly in managed funds.

If you’ve got money in a bank savings account, you pay tax on the interest it earns at whatever your ‘marginal tax rate’ is. For example, if you earn $60,000 a year, your marginal tax rate is 34% (including the Medicare levy) for the 2013-14 financial year. Inside super, you would pay tax at a maximum of 15% on interest or investment returns. 

If you’re self employed, you can usually claim a tax deduction for personal super contributions you’ve made. 

Super becomes even more tax effective after you’ve reached the age when you can get access to your super benefits.  

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How much superannuation do I need?

How much super you’ll need to have saved by the time you retire will depend on:

  • your expectations for things like travel, eating out, and helping out children and grandchildren 
  • whether you’ll have any other income – such as if you plan to do part time or casual work
  • whether you have any debts that will continue after you’ve stopped working, such as still paying off your home loan.

To give a rough guide, the Association of Super Funds Australia (ASFA) has estimated that a comfortable retirement costs $41,169 a year for a single person and $56,317 a year for a couple.*

As a general guide, the table below estimates what approximate lump sum you would need to have saved to generate a certain level of steady income in retirement for 25 years from age 65 to age 90.^

 

Your annual retirement income target

Super lump sum target at retirement at age 65

$40,000

$550,000

$50,000

$890,000

$60,000

$1,170,000

 

In working out your super savings goal, don’t forget to add in any major one-off expenses such as extra money for aged care, a house renovation or a new car. (No allowance is made for such expenses in the lump sum targets above.) And if you think you’ll still have debt (like your mortgage) in retirement, factor in those payments too.

Suncorp’s Retirement Simulator can help you estimate how you much super you’re likely to accumulate by your retirement age – so you can see if your savings are on track.

* ASFA Retirement Standard, www.superannuation.asn.au, March Quarter 2013

^Uses MoneySmart retirement planner at www.moneysmart.gov.au Assumes a home-owning single person who retires at age 65 with funds invested in a ‘moderate’ option with an annual return of 6.40%. Retirement savings figures are rounded to the nearest $5,000. Annual income target includes the age pension. 

 

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Can superannuation be used to buy a house?

To give your super time to grow, the funds are ‘preserved’ throughout your working life. This means that usually you can’t get access to your super until you retire. Only then could you withdraw all or part of your super as a lump sum for a home loan deposit, or to pay off any debts. 

There are some exceptional circumstances under which you may be able to get early access to your super, including:

•    becoming disabled (temporarily or permanently)
•    having a terminal illness
•    leaving Australia permanently (if an eligible temporary resident)
•    severe financial hardship or compassionate grounds
•    if you die, in which case your super is released to your valid beneficiaries.

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Can superannuation be accessed early?

No, generally not. To give your super time to grow, the funds are ‘preserved’ throughout your working life. This means that usually you can’t get access to your super until you retire. 

However, there are some exceptional circumstances under which you may be able to get early access to your super, including:

•    becoming disabled (temporarily or permanently)
•    having a terminal illness
•    leaving Australia permanently (if an eligible temporary resident)
•    severe financial hardship or compassionate grounds
•    if you die, in which case your super is released to your valid beneficiaries.

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At what age can you access your super?

Super is designed specifically as a way of saving for your retirement. Other than in a few exceptional circumstances you can’t therefore get hold of your super money until you reach retirement age (age 60 if you were born after July 1964) and stop working. At 65 you can get access to your money whether you’re working or not.

For more information visit our when can you access my super page.

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What is an annuity?

There are two main types of retirement income streams: allocated pensions and annuities. 

An annuity is a type of investment provided by a life insurance company. You ‘buy’ an annuity with an up-front lump sum, which you provide from part or all of your super savings. The annuity then gives you set income payments over a specified period. 

Payments are guaranteed for the life of the annuity, irrespective of what investment markets are doing. Annuities therefore provide greater certainty and security for your capital, but at the same time, your savings won’t grow if investment markets are performing well, as they would with an allocated pension account. 

There are two types of annuity:

-    Lifetime annuities, which pay you an income until you die.
-    Term certain annuities, which last for a set time, after which they may return some or all of the up-front cost.

Once you have invested in an annuity, the payments you’ll receive are fixed and you may not be able to make lump sum withdrawals. 

 

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What is an allocated pension?

There are two main types of retirement income streams: allocated pensions and annuities. 

In a sense, an allocated pension account is like continuing with the super account you had all your working life, except you’re now allowed to withdraw money from it. It gives you regular income payments, taken (ie ‘allocated’) from your lump sum super savings. 

You can choose how much income to receive each year and can change your payment amounts (within certain limits) or take out a lump sum.* 

Your ongoing pension account balance will fluctuate for two reasons:

- Your savings continue to be invested according to your chosen investment option – so they may continue to grow, depending how your money is invested and how investment markets perform.

  • - Your ongoing pension payments or any lump sum withdrawals come directly from your account balance. 

For most people, the overall effect of this is that the money in their pension account will gradually decrease over their retirement years, until eventually it runs out completely (assuming they haven’t died first). 

 

*Between age 55 and 65 the minimum pension you normally have to take is 4% of your account balance. A maximum of 10% will apply if you have a transition to retirement pension. (2012-13 rates.)

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