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I am trying to make sense of the lingo that goes with super but it seems the language is designed by public servants, accountants and financial planners to ensure most of us are left in the dark. Could you help me understand the different types of contributions and benefits?

(P.S. This is a question from last year but because the Government has been tweaking super, my answers are now different and so I will have a 2013 shot at it.)

There are two general types of contributions — compulsory or mandated ones made by your boss and non-mandated or voluntary ones. The 9 per cent contributions made by employers have to be made by law and this changes to 9.25 per cent on 1 July this year. Also on 1 July, even if an employee is 70 years of age or more, compulsory super has to be paid. It used to cut out at 70 unless your specific award insisted on it being paid. Voluntary contributions can continue until you are 75 years of age but a work test applies. 
There are no general restrictions over pumping up your super with voluntary or non-concessional contributions until you are 65 years of age. Between 65 and 74, you have to pass a work test to add to your super. This test says you have to work at least 40 hours in no more than 30 consecutive days or 40 hours a month in simple terms. So if a retiree works at the Royal Easter Show and clocks 60 hours of work over the fortnight of the show, he passes the test and can sling the dough into his super fund. If you’re over 75, you can’t add to super with these kinds of contributions.

On taxable and untaxable super or super benefits, let me try to simplify it all. Imagine you have accumulated a million dollars of super benefits and $400,000 is untaxable, which means $600,000 is taxable. This would be made up of contributions that attract the concessional 15 per cent tax — concessional contributions that might have come from your boss (though it’s your wage money) and, say, salary sacrifice contributions you made as an employee. There would also be the income you made in the fund, which is also taxable. These build up in the accumulation phase of a super fund, but as the balance is reduced, the ratio remains the same. A fund can go into a loss phase when markets crash and benefits are being paid out to a retiree. The tax-free portion refers to contributions made out of your income that already had been taxed.

When you hear of people putting $150,000 a year into their super fund, or $450,000 for a three-year period, these are non-concessional or tax-free contributions inside the super fund, because it has already been taxed. If you retired and turned your super fund into what’s called an account-based pension, provided your ratio of taxable benefits to untaxable benefits is 60 per cent to 40 per cent, this does not change.

On benefits, there are three types: preserved, restricted non-preserved and unrestricted non-preserved. Preserved benefits, since 1 July 1999, are all super contributions from those under 65 and the income earned in the fund. A release of benefits is possible but it takes a lot of work and hardship to get super money back before retirement. The preserved amount comes from concessional and non-concessional contributions, plus the income earned of course. If investment losses are greater than the preserved benefits, they can be allocated against the member’s restricted non-preserved benefits and if the losses exceed this amount, it can be set against the amount of the unrestricted non-preserved benefits.

Now I know this is complicated, but blame Treasury. Let me explain. Restricted non-preserved benefits are undeducted or non-concessional contributions made before 1 July 1999. This is extra, already taxed money that you threw into super before the critical date. It also includes benefits from sponsored super funds created before 22 December 1986. These monies can’t be withdrawn until certain cashing restrictions are met. Unrestricted non-preserved benefits are like the above but where a condition of release has been granted and therefore there are no cashing restrictions. I have purposely got into nitty gritty in these areas to make the point that if you have benefits that come with complications, then it might be wise to get an expert to have a look at them so you know where you stand.

By the way, on 1 July a 60 year old will now have their cap on concessional contributions — generally compulsory super plus salary sacrifice — raised from $25,000 to $35,000. This will be extended to Aussies aged 50 years and over for the 2014-15 year.

Published on: Thursday, June 20, 2013

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