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This
booklet gives information of a general nature and is not intended
to be relied on by readers as advice in any particular matter.
You
should consider consulting a financial adviser regarding how this
information may apply to your own circumstances.
Other
formats
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FREQUENTLY ASKED QUESTIONS
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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.
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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 contributions.
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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 in retirement.
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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.
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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.
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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.
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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
support; and
- 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.
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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.
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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.
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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.
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