Newsletter:

Super News - Is your superannuation in order?

31 October 2019

Diljeet Singh |

With the second quarter of the financial year now upon us, it’s a great time for trustees to consider their superannuation planning, before the financial year gets away from us. To get the ball rolling, we have answered some of the most commonly asked superannuation questions.

How often should I review my superannuation?

This question should be answered with another question - when was the last time you looked at your superannuation? Was it at year end when your super fund sent you your annual statement and if so, was it just a quick glance at the closing balance? With the average life expectancy increasing, people today will need more savings (compared to previous generations) to live comfortably in retirement. Knowing how much money you will need to retire comfortably will help you put a plan in place to achieve that goal.

You should review your superannuation as frequently as you would your other personal finances. It is important to put a plan in place as early as possible so you know what’s needed to arrive at your retirement target amount. Doing this when you are young, with time on your side, can be very beneficial. Consider what contributions are right for you given your personal circumstances and ensure you have selected the correct investment strategy to meet your needs. In addition to increasing your retirement funds, utilising contributions effectively can also lead to tax advantages (outside of superannuation) and this is particularly relevant given the changes that came into effect on 1 July 2017, allowing most income earners to claim tax deductions for their personal super contributions.

In addition, it is important to have the correct insurance within your superannuation fund, taking into account your personal circumstances, and current nominated beneficiaries. At a minimum, these should be reviewed when any of the following events occur:

  • Start or end of a relationship
  • Birth or adoption of a child
  • Death of a family member
  • Changing job – such as risk involved so you can secure the appropriate level of insurance
  • Major changes to your financial circumstances.

If you have had multiple jobs and aren’t sure of whether you have nominated the same superannuation fund for each position, you can log into your MyGov account, navigate to the Australian Taxation Office (ATO) section and view the super funds you have. If you are considering consolidating your super into one fund and you are unsure which super fund is right for you, you should seek help from a licensed financial planner.

Additionally, you may like to check to see if you have any unpaid superannuation contributions Contacting the ATO is the best way to recover these amounts.

When can I access my superannuation benefits?

To gain access to your superannuation, you must meet what is called a ‘condition of release’. The most common conditions of release include:

  1. Reaching preservation age and retiring from the workforce permanently – your preservation age is based on the following ATO table. Please note tax may be payable personally on the payments you receive prior to you turning 60

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

  1. Reaching preservation age and starting a transition to retirement income stream – this allows you to receive superannuation payments once you reach preservation age, even if you are still in the workforce
  2. Ceasing an employment arrangement on or after the age of 60 – once you reach the age of 60 and give up one employment arrangement but continue in another employment arrangement, you may cash all benefits accumulated up to that time
  3. Turning 65 – you can access your superannuation benefits once you are aged over 65, even if you haven’t retired.

Other conditions of release include:

  • Incapacity – provided certain legislative requirements are met and you cannot work due to physical or mental ill health conditions
  • Severe financial hardship – if you receive eligible government income support payments continuously for 26 weeks and are unable to meet reasonable and immediate family living expenses
  • Compassionate grounds – if you have unpaid expenses for the following events (not a complete list):
    • Medical treatment and medical transport for you or a dependant
    • Palliative care for you or a dependent
    • Making a payment on a loan or council rates so you don’t lose your home
    • Expenses associated with a death, funeral or burial for a dependent
  • Terminal medical condition – if you have a terminal medical condition and two medical professionals certify that the condition is likely to result in your death in the next 24 months.

What happens to my superannuation when I die?

In the event of your death, your superannuation does not automatically form part of your estate (i.e. your Will is ineffective in dealing with your superannuation benefits). If you do not provide properly executed instructions, the trustee of your superannuation fund will decide how your superannuation savings will be dispersed.  Trustees may like to consider one or more of the following approaches to ensure their superannuation benefits are paid in accordance with their wishes.

Accumulation funds

One method to nominate a beneficiary is to complete a Binding Death Benefit Nomination and submit it to your superannuation fund. The beneficiary can be your legal personal representative and/or one or more eligible dependents. Eligible dependents can include (but are not limited to):

  • Your spouse
  • Your child – this can include your adopted child, stepchild, etc
  • An individual who is financially dependent on you.        

It is important to seek assistance from your superannuation adviser to complete this nomination.

Pension funds

If you have met a condition of release and are ready to commence a pension, also known as an income stream, you have the option to create a reversionary pension. A reversionary pension allows your pension to continue to a  pension beneficiary when you die, however each pension can only have one beneficiary.

A Binding Death Benefit Nomination can also be put in place for pension funds, similar to accumulation funds discussed above. This type of nomination can potentially cover a member’s benefits in both accumulation phase and pension phase. It is best to contact your superannuation fund to determine which nomination takes precedence over the other in the event of your death.

When deciding which nomination to choose you should consider:

  • Number of beneficiaries – a reversionary nomination can only nominate one beneficiary for each pension
  • Ages of your beneficiaries – the age of the beneficiaries can affect the income tax consequence of the death benefit payments in the hands of the beneficiaries
  • Beneficiaries transfer balance cap – this limits the amount that can be put into pension phase and entitled to the 0% earnings tax. How you wish to disperse your funds upon death.

Please note these are only some methods of directing your superannuation benefits upon death, and there may be a more suitable option for you. It is important that your superannuation estate planning is reviewed with your trusted adviser periodically, and as soon as your personal circumstances change. 

If you would like to discuss your situation or if you have any other superannuation questions, please get in contact with one of our expert advisers.

Superannuation team

Disclaimer: The information contained in this article is purely factual in nature and does not take into account your personal objectives, financial situation or needs. It is provided as an information service only and does not constitute financial product or other professional advice and should not be relied upon as such. Before making any investment or financial decisions you should consider your particular objectives, and financial circumstance or needs. Where information relates to a particular financial product you should obtain and consider the relevant Product Disclosure Statement and obtain advice from a financial adviser before making any decision. If you do require financial advice, please contact the relevant BDO member firms in Australia who will be able to assist you in their capacity as an Australian Financial Services licensee. BDO Australia Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not give any warranty as to the accuracy, reliability or completeness of information contained in this article nor do they accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it, except in so far as any liability under statute cannot be excluded.