Understanding the basics

Understanding the basics

Whether it’s your own retirement savings, or group super for your employees, it pays to understand the ins-and-out of how superannuation works.

What is superannuation?

For many Australians, super will be their main source of retirement income. They'll accumulate super during their employment throughout their lives, and one day they'll turn this money into a retirement income stream.

But what if you're the one paying the super? As a business owner, your personal super is your own responsibility but it is also up to you to fulfil your super obligations to your employees.

If you'd like to find out more about your own super, click here. Or read on to find out more about what you need to do for your employees.

Do I have to pay super to my employees?

Generally speaking, you have to pay super for your employees if they:

  • are between 18 and 70 years of age
  • are paid $450 (before tax) or more in a calendar month, and
  • work full-time, part-time or on a casual basis.

The minimum amount of super (also known as the 'Superannuation Guarantee') you need to pay is based on 9.5% your employee's 'ordinary time earnings' - or the amount of hours they normally work. These amounts must be paid at least quarterly to avoid penalties.

The super payments you make to your employees are generally tax-deductible in the financial year you pay them. For full details of your super obligations, read the Australian Taxation Office's Guide for employers.

Do I have to pay super to myself?

If you're self-employed, you don't have to pay super to yourself. But you may choose to do so to help build your retirement savings.

You may also be eligible to claim a tax deduction for any contributions you make to super. This can make super an attractive way to save - provided you're prepared to put this money away until retirement.

Can my employees choose their own super fund?

The short answer is yes. Since 1 July 2005, employees, with some exceptions, have been able to choose the super fund their contributions are paid to.

If your employees don't exercise this choice, you must be able to provide them with a 'default' super fund you have chosen. OnePath can help you set up a default fund for your employees - click here for more information.

Do I have to provide life insurance for my employees?

If you contribute to a default super fund for your employees, it is generally required to provide a minimum level of life insurance, depending on your employees' age.
 

Age of member (years) Minimum level of death cover required

0-19

Nil

20-34

$50,000

35-39

$35,000

40-44

$20,000

45-49

$14,000

50-55

$7,000

56 +

Nil

How can a financial adviser help me?

A financial adviser can help you ensure your own super is working towards your long-term retirement goals. If you have employees, they can also help you choose a group super and insurance arrangement that suits your circumstances. If you don't have a financial adviser, OnePath can help you find one in your local area.

Tips, tools and strategies

How much super is enough?

It's easy to find out how much super you need to pay your employees. But how much you should be putting into your own super account each year? The right amount of super you'll need depends on your individual circumstances - such as your current age, current income, desired retirement age, desired retirement income, and current super balance.

It's also a good idea to speak to a financial adviser. They can help you with strategies to make the most out of your super, and save more for your retirement.

Consolidate your super and save

Do you have multiple super accounts from when you were an employee? Well you're not alone. The average worker has approximately three or more super accounts. Over time, having multiple super accounts will erode your retirement savings, as you are most likely paying more in fees. Combining all your super into one account can reduce the fees you pay, and make it easier for you to manage and track.

By rolling your own super into a group plan for you and your employees, you may also be able to take advantage of the scale benefits of having multiple super accounts in one fund - potentially reducing your fees even further. For more information on starting a group super fund, click here.

Make tax-deductible contributions to super

If you're self-employed, you are generally eligible to claim your super contributions (both for you and your employees) as a tax deduction. For business owners, this can make super a tax-effective way to save - provided you're prepared to put this money away until retirement.

Take out insurance tax-effectively

To help Australians save for their retirement, the Government has implemented a number of tax concessions for superannuation. As a result, holding some of your life insurance inside super can be a tax-effective way to get the cover you need.

How does it work?

You hold your life insurance (usually death and TPD cover) inside your super account, and use your super contributions to pay your premiums.

Instead of purchasing a stand-alone insurance policy - where premiums are paid for from your after tax income - using your super contributions means you're effectively paying your premiums using pre-tax money.

How does insurance through super benefit you?

  • You may not have to find extra money to pay for your premiums, as they can be paid from your super fund account balance.
  • Tax concessions apply for most premiums paid.
  • Given the savings, you may be able to top up any stand-alone insurance policies (those you hold outside of super) and increase your overall coverage.
  • Your qualifying dependants can receive unlimited tax-free lump sum payments if you, the insured, pass away.
  • Premiums via group super plans can be cheaper because the super fund is buying the insurance 'in bulk'.

Are there any limitations?

  • When an insurance policy is held inside super, the super fund is the owner of the policy. That means any benefits are paid to the fund before they're paid to you or your beneficiaries. This could potentially slow down payment, and add an additional set of criteria you need to meet before the funds are released.
  • Eroding your super balance to pay your insurance premiums can reduce your long-term retirement savings. To avoid this, you might consider making additional contributions to your super to cover your insurance premiums.
  • Insurance benefits for policies held outside super are often paid tax-free - regardless of who receives it. The same rules do not necessarily apply for benefits paid via a super fund. For example, if a beneficiary is a non-dependant child or adult, a death benefit may be taxed at 16.5%.

To find out more about insurance for business owners, click here.

Superannuation with OnePath

When you've got your own super, and your employees super to consider, you need a solution that makes your life easy. After all, you've got plenty of better things to do than administration. By outsourcing your employer super to OnePath, you can be confident you've got a team of skilled experts looking after your super fund, and taking the time-consuming paperwork out of your hands.

OnePath's broad range of super solutions are simple to use, and easy to understand. Our products cover personal and business super needs and include:

  • OneAnswer Personal Superannuation
  • PortfolioOne Superannuation & Pension
  • DIY or Self Managed Super
  • Integra Super - closed to new employers
  • Corporate Super - closed to new employers
  • ANZ Smart Choice Super

To find out which super product is best suited to your individual needs, talk to your financial adviser. If you don't have an adviser, we can arrange for one to contact you or you can find an adviser.

Life insurance through super

With OnePath, you also have access to a complete range of life insurance covers - including specialist protection for business owners and their employees.

Find out more about flexible personal insurance options for yourself and your family. Or take a look at cost-effective options for providing group life insurance to your employees, inside or outside super.

To find out how OnePath can help you sort out your super and life insurance needs, speak to your financial adviser, or call OnePath on 133 665.

OnePath is one of the leading providers of financial services in Australia, including investment, insurance and superannuation. Find out more online or speak to a financial adviser. You should not rely on this information and should seek your own advice on your obligations.