FREQUENTLY ASKED QUESTIONS
HOW MUCH SUPER IS ENOUGH?
While your superannuation balance might seem like a lot of money,
once you take inflation into account and consider that your money
might need to last 20 or 30 years in retirement, you might be disappointed
to find out how much the compulsory 9% employer contributions will
provide you to live on.
Some say a target of 65–70% of a person's pre-retirement income
is an appropriate retirement income target. But how much money you
will need in superannuation will depend on a number of factors such
as what sort of standard of living you expect in retirement, what
other sources of funds you'll have to draw on, the health and accommodation
expenses you will have in retirement, when you retire and how long
you live, and how your money is invested and performs in retirement.
If you plan to withdraw your superannuation before you turn 60
years of age, some tax will apply so this also needs to be taken
into consideration as it will lower your benefit.
There are many calculators on the Internet that
can help you work out whether you are likely to have enough
super to fund your retirement dreams. A good place to start
is ASIC's retirement planner calculators available on www.fido.asic.gov.au.
Many super funds also have calculators on their website. You
should speak to your financial adviser about your retirement
income expectations. You may need to consider making extra
A financial adviser can help you forecast what sort of superannuation
you might need to meet the standard of living you expect in retirement
as well as assist you with strategies to achieve this target. Obviously
the longer you are in the workforce and having money contributed
to super, the greater your retirement savings. And the more money
you save now, the more choices and quality of life you will have
CAN YOU ACCESS YOUR SUPER BEFORE YOUR PRESERVATION AGE?
Under superannuation law, generally you are able to access
your super when you reach your ‘preservation age’.
There are some limited circumstances where you might be able
to get access to your super before you reach your ‘preservation
age’, including severe financial hardship, compassionate grounds,
permanent incapacity or death.
There are strict controls on early access. For example,
even if your fund's rules allow access on compassionate grounds,
the Australian Prudential Regulation Authority must also consider
your application. In addition to laws restricting early access,
individual super funds have their own rules, so check with
your super fund for more information
Watch out for scams involving early release
of your superannuation. Avoid dealing with anyone who
asks for fees to gain access to your super before the
rules allow. The Australian Securities and Investments
Commission and the courts impose heavy penalties for
anyone who breaks the law in this way.
Nominating your preferred beneficiary or
beneficiaries is just as important as having a will.
Remember most binding death nominations need to be updated
every three years to remain valid. Make sure you update
your nomination if your personal circumstances change.
For example, you might have children or get divorced.
WHAT HAPPENS TO YOUR SUPER IF YOU DIE?
Funds allow you to nominate your beneficiary with a non-binding
nomination. Others offer binding death benefit nominations,
which generally must be renewed every three years. If your
fund offers binding nominations and you have made a valid
one, the fund is compelled to follow your nomination.
A non-binding nomination can’t compel the fund trustee to
pay your death benefits in a certain way. While it can help
the trustee decide who your death benefit should be paid to,
payment is at the trustee’s discretion. The trustee will take
into account who would be likely to rely on you financially.
Generally, your death benefit – which includes any super money
you are entitled to from your fund at the time of your death
and any insurance payout as a result of death cover through
your super fund – must be paid to your dependants or your
estate. If you have no dependants and nobody administering
your estate, your fund might be able to consider whether anyone
else should receive the benefit. For example, next of kin
or any other person with an established close relationship
with you. Death benefit payments to non-dependants have to
be made as a lump sum.
Under superannuation law, your spouse and children are automatically
regarded as dependants. A spouse includes a legally married
or de facto spouse. A child includes one born within or outside
marriage, an adopted child and may include a stepchild. A
dependant can also be any other person who, in the opinion
of the trustee, relies on you financially at the time of your
death or a person with whom you have an interdependency relationship
with. An interdependency relationship is defined as two people
(whether or not related by family) who:
- live together; and
- have a close personal relationship; and
- one or each of them provides the other with financial
- one or each of them provides the other with domestic support
and personal care.
An interdependency relationship can also exist where there
is a close personal relationship between two people who don't
satisfy all other criteria for interdependency because either
or both of them suffer from a physical, intellectual, psychiatric
or other disability.
HOW ARE DEATH BENEFITS TAXED?
Death benefits receive favourable tax treatment depending
on who receives the benefit and how it is paid.
Death benefits paid as a lump sum to your dependants are
tax free. Taxation on death benefits paid as a reversionary
pension to a dependent or paid as a pension to a dependant
if the member dies before commencing a pension depends on
the age of the primary and reversionary beneficiary.
Death benefits paid to non-dependants could be taxed. For
example, a benefit paid to your children who are aged over
18 years and who are not financially dependent on you. In
some cases – such as untaxed funds like money from an insurance
payout – up to 30% tax could apply. This could considerably
erode the amount of inheritance you can pass on.
You should speak to your super fund, tax adviser or financial
adviser for information to help you put the right nomination
strategy in place to suit your circumstances.
Did you know?
A dependent for tax purposes
includes your spouse (including defacto
spouse) or former spouse; your children
aged under 18 years; a person who is wholly
or substantially financially dependent on
you at the time of your death; and a person
who you were in an ‘interdependency relationship’
at the time of your death.
WHAT HAPPENS TO SUPER IN DIVORCES AND SEPARATIONS?
The law allows the splitting of superannuation in the event of
separation or divorce. It would be treated like any other asset
if a marriage breakdown occurred that ultimately led to divorce.
It’s up to the couple to decide how they would like to divide the
funds. If no agreement can be reached, the Family Court will decide
how to divide the superannuation, based on circumstances. The law
does not cover separating de facto or same sex couples. In the case
of this sort of relationship breakdown, these parties would rely
on general state property law arrangements.