Understanding superannuation

Presented by

Silas Dingiria, Member Services

Manager

1

Disclaimer The following information is general advice and was prepared without taking into account your objectives, financial situation or needs. Therefore you should consider the appropriateness of the advice in light of your personal situation before acting on the advice.

An AvSuper Product Disclosure Statement on any financial product mentioned in this document should also be obtained and read prior to proceeding with an investment decision.

A brief history of Australian

Superannuation and Retirement

Pensions

A brief history of Superannuation and Retirement Pensions in Australia

1862 Introduction of superannuation to Australia

1900 NSW introduces a means tested age pension of £26 pa

1973 Only 32% of working Australians covered by Superannuation

1983The Hawke Government expresses support for the principles of employee Superannuation with employers obligated to contribute 3% rising to 6% over time

1990 AvSuper established

1992 Compulsory Superannuation commenced 1 July

1992 Superannuation assets at $148 billion(estimated by Reserve Bank of Australia)

2013 Superannuation assets estimated at $1,463.3 billion

2013 The Association of Superannuation Funds of Australia (ASFA) statistics - 31.3 million super accounts in Australia

A brief history continued…

What does this mean for me?

1. Compulsory Super contributions for the entire working life of those starting work after 1991.

Thus more in super and, in theory, a more comfortable retirement.

2. In 15 years super assets have grown by over a TRILLION dollars

3. Extreme pressure on social security system (Age Pension) when the baby boomer generation retires.

Baby Boomers accounted for 69% of workers in 2009 (5.6 million out of 8.1 million full time employees)

4. ABS statistics at 30 June 2012– 22.9 million Australians– 8,112,500 full time employees

An Overview of Superannuation

Rules in Australia

Accessing your super

Date of Birth Preservation Age

Before 1 July 1960 55

1 July 1960 - 30 June 1961 56

1 July 1961 - 30 June 1962 57

1 July 1962 - 30 June 1963 58

1 July 1963 - 30 June 1964 59

From 1 July 1964 60

• when you reach your ‘preservation’ age & permanently retire

• when you reach age 60 and cease your current employment

• when you reach age 65

Accessing your super cont’d

You may be able to access super early through

• Terminal illness• Financial hardship• Compassionate grounds

Note specific criteria must be met to be eligible for such claims.

Nominating super beneficiaries

Non-binding• Provides direction to the Trustee• Can be changed via Member Online or a form• No expiry date

Binding• Legally binding so Trustee must follow it• Must be valid and less than 3 years old• Can be changed by completing a form and

having it witnessed

Remember to update it periodically and for major life changes

Taxation TreatmentTax on contributions

Concessional (Employer & salary sacrifice) contributions are generally taxed at 15%

Tax on investment earningsInvestment earnings of super are taxed at a maximum rate of 15%

Tax if you don’t provide your Tax File Number (TFN)By not providing your TFN you may pay up to 45% (plus Medicare levy) contributions tax

Tax on withdrawalsTax on withdrawals varies depending on age and other characteristics All super accounts have a taxable and tax free component. Tax on the taxable component is applied as:

– 22% for people below preservation age– 17% for people between preservation age and age 59– Nil tax for people aged 60 and above

Note: A low rate cap applies in certain circumstances which may reduce tax on the taxable component

Super contributions

Types of contributions

• Superannuation Guarantee (employer)

• Salary sacrifice contributions (pre-tax)

• Member voluntary contributions (post-tax)

• Spouse contributions (post-tax)

• Government low income contribution

• Government co-contribution

Ordinary time earnings (OTE)Employer contributions are calculated as a % of your

OTE, which generally Includes: Examples

Awards & agreements Usual hours, casual shift-loadings

Allowances Danger, retention, unconditional extra payment

Payment of expenses Return to work (under workers compensation)

Leave payments Annual leave, sick leave, long service leave

Bonuses Performance, Christmas, ‘ex-gratia’ for ordinary hours

Other Commissions, termination pay (in lieu of notice)

Excludes: Examples

Over time amounts Hourly rates, loadings, annualised rates, lump sum payments, casual employees

Payment of expenses Reimbursements, unfair dismissal, petty cash

Leave payments Parental, jury duty, defence reserve service

Bonuses For overtime

Other Termination pay (unused sick, annual or long service leave)

Contribution type

Contribution limit

Before-tax contributions(concessional)

• employer• salary sacrifice• self-employed

$30,000 pa (indexed)

$35,000 pa if over 50 (not indexed)

After-tax contributions

(non- concessional)

• after-tax voluntary• spouse

$180,000 pa(6 x concessional limit)

If under 65 can pay $540,000 in one year, then $0 for next 2 years.

Super contribution limits

Government Co-Contributionfrom 1 July 2014

• $0.50 for each $1.00 you contribute after tax, up to a maximum of $500 (where your total income is less than $34,488)

• The co-contribution is reduced if your total income is $34,488 - $49,488

• 10% or more of your total income must be from employment, running a business or a combination of both

Other eligibility criteria also apply

Spouse contributions

If you make a contribution for your spouse you may be able to claim a tax offset up to $540 per financial year:

• 18% of contributions up to $3,000

• spouse’s total income is $10,800 or less

• reduces by $1 for each $1 over $10,800

• is nil if your spouse earns $13,800 or more

To be eligible for the Spouse Contribution tax offset

• You did not claim a tax deduction for the contributions

• Both you and your spouse were Australian residents when the contributions were made

• Your spouse’s assessable income + total reportable Fringe Benefits amounts are less than $13,800

Contributions splitting• You can split concessional

(before–tax) contributions with your spouse

• You can only split concessional contributions made to an accumulation account

• Contribution splitting is limited to a maximum of 85% of your concessional contributions

• Contributions exceeding your concessional limit cannot be split

Note: You can only split contributions made in the previous financial year

Investments and

superannuation

Asset classes explained

Growth assets• e.g. shares and property• higher risk but also have the potential for

higher returns, especially over the long term

Defensive assets• e.g. cash and fixed interest (bonds) • lower risk but generally provide lower returns

Investment Options and performanceAs at 30 September 2014

Investment Options

Defensive Growth 1 year 3 year* 10 year*

Growth (MySuper) 20% 80% 9.0% 12.6% 6.0%

Conservative Growth 70% 30% 6.4% 7.4% -

Stable Growth 50% 50% 8.6% 9.7% 5.9%

High Growth 0% 100% 10.8% 16.3% 6.6%

Australian Shares 0% 100% 7.6% 16.4% -

International Shares 0% 100% 13.1% 16.8% -

Cash 100% 0% 3.6% 3.5% 4.3%

* Compound average returns

Member Investment Choice (MIC)

• Seven investment options available to suit your risk profile and retirement horizon

• No switching fees and you can switch as many times as you like

• Current balances and future contributions and rollovers can be invested differently

Growth (MySuper) investment option

The default option for members not making a choice

0.77% investment management fee

Primary objective:(a return after fees & taxes above CPI)

AvSuper Insurance

AvSuper Insurance• 2 units of Automatic cover is provided for

Death and Total & Permanent Disablement (TPD) – you can choose to opt out

• You can apply for additional cover and Income Protection cover

• Premiums – deducted from your account monthly– based on your age and number of units

• Pre-approved cover increases for major events

Term, conditions and eligibility rules apply

Income Protection (IP) Cover

• Short Term cover - payable for up to 2 years

• Long Term cover – payable up to age 60

• Your choice of 30, 90 or 180 day waiting period

• Cover up to 75% of salary

• An additional 10% salary can be insured as a super contribution into your AvSuper account

You must be working at least 15 hours per week to be eligible for this cover

Example insurance cover

* Based on a male member at age 35 earning $120,000 in a light blue collar occupation

Type of cover Number of units

Amount of cover

Annual premium*

Automatic death and TPD 2 $124,000 $66.56

Death only 8 $496,000 $178.88

Death and TPD 8 $496,000 $266.24

Income Protectionshort-term cover with 30 day waiting period

$8,500 pm $469.20

After super…

Super Income Streams

•Same low fees and strong investment returns as other AvSuper accounts

•Withdraw funds once you are retired – tax free if over 60

•Any remaining balance can be paid to your dependants or estate when you die

•Counts 100% towards the Centrelink Asset test

AvSuper income streams

Full income stream Transition to retirement (TTR)

Retired Can still be working

Can with draw lump sums Can’t withdraw lump sums

Withdraw up to 100% of balance each year

Withdraw up to 10% of balance each year

Same fees, investment choice and member benefits apply to both income stream types

• Access once you reach preservation age• Cannot add money once opened• Two types:

From super to Income Stream

Earn a salary

9.50% employer contribution & salary sacrifice into super

Transfer super into an income stream

Draw down at least 4% a year as an income stream

Qualifying for the Government pension

• Centrelink does two eligibility tests

• Apply the lower rate to determine your pension eligibility

More about YOUR fund

Other Features

• Anyone can join AvSuper• Online account access• Stay in AvSuper when

changing employers – and industries

• Monthly investment update on our website

• No contribution fees• No fees to switch investment

options

AvSuper’s Member Advice Solution

• Personal advice about insurance, contributions, income streams (includingTTR) and investment options available through your AvSuper account

• Provided at no additional cost up to three times a year with a nominal charge applying to subsequent requests

To make an appointment for personal advice, Call 1800 805 088 or

email avsinfo@avsuper.com.au

Changing employers, keeping your super

• Stay with AvSuper if you change employers or stop working

• New employers can contribute to AvSuper for you

• Employer and personal contributions can be made by cheque or direct deposit

Rollovers to AvSuper• Rollover amounts from other super funds -

keeping your money together can save on fees

• No entry fee is charged

• Your old fund may charge an exit fee and you may lose other member benefits when transferring

• You may be eligible to transfer your existing super insurance over

eRollover via Member Online – easy!

To find out more….• Visit www.avsuper.com.au

• Call 1800 805 088

• Tweet twitter.com/aviationsuper

• Like facebook.com/AvSuper

• Visit us in Canberra (off 25 Constitution Ave, opposite Airservices reception)