Hidden perks that make your super account even better

By setting up a salary-sacrifice arrangement with your employer, you can swap the income tax rate you would normally pay on some of your income with the lower 15% tax rate applying to super contributions. If your normal marginal income tax rate is 47% (including the Medicare levy), that represents a big saving. Unfortunately, for lower income earners the tax savings are not quite as good.

If your employer doesn’t offer salary sacrifice, then consider making a voluntary personal contribution and claiming a tax deduction instead.

Since 1 July 2017, most people aged under 75 can claim a tax deduction when they make voluntary personal contributions into their super account up to the annual concessional (before-tax) contributions cap. The annual concessional contribution cap for 2022–23 is $27,500.

For super members with less than $500,000 in their super account, if you don’t use the full amount of your concessional contributions cap in a particular year, you can carry forward any unused cap amount and take advantage of it up to five years later.

Using the carry-forward rules gives you the opportunity to contribute more into your account in a single year and claim a bigger tax deduction for that financial year when you lodge your annual tax return.

2. Avoid having a medical for insurance

Most large super funds automatically offer their new members a valuable range of insurance cover as part of their fund membership, which can make it an easy way to provide protection for yourself and your family.

Even better, most members taking out death and total and permanent disability (TPD) insurance cover don’t need to undergo a medical examination.

Aside from the time you save not having to see a doctor for an examination, automatic cover is a really great benefit for people unable to obtain cost-effective insurance cover outside super due to their age or ill health. If your annual insurance premium is likely to include a loading or exclusions due to pre-existing medical conditions (such as heart problems or diabetes), automatic acceptance can save you real money.

3. Ensure your money goes where you want

Disgruntled family members challenging the intended beneficiary of a super death benefit payment is becoming an increasingly common event.

A cheap and simple way to avoid this and ensure your financial plans are not overturned is to put in place a death benefit nomination for your super account.

If you put in place a binding death benefit nomination (BDBN), you can ensure your super savings and any associated insurance payments go to the people you intended when you die.

A correctly made BDBN provides certainty your death benefit will be paid in accordance with your wishes, as the nomination is much less likely to be successfully challenged by a disgruntled beneficiary. Some super funds even offer a non-lapsing BDBN, so you don’t have to worry about renewing your death benefit nomination every few years.

If you are receiving a super pension when you die, you may even be able to organise for your pension to revert seamlessly to your spouse so they continue receiving your regular payments.

4. Pay less tax on your investment returns

An often misunderstood benefit of the super system is it’s not an investment asset itself. Rather, it works as a tax-effective ‘wrapper’ around your investments. It provides a concessional tax environment for your super savings that can create valuable tax savings if you earn a higher income.

When you invest outside super in your own name, income is taxed at your normal marginal tax rate. Within the super system, however, income from the same asset is taxed at the lower rate of 15% (and any capital gains at 10% if the assets are owned for at least 12 months).

Once you retire, if you start a super pension that complies with the annual minimum payment requirements, there is no tax payable on either the income you receive or any earnings (including capital gains) on the investments supporting your pension.

5. Cheaper insurance cover for members

Since most publicly offered super funds purchase insurance policies for their members in bulk, they can usually negotiate a cheaper deal for cover with their insurance provider. In many cases, this makes insurance cover bought through your super fund more cost effective than if you buy it directly from an insurance company.

Paying for insurance through your super fund also makes budgeting easier, as the premiums are automatically deducted from your super account. That way, if your budget is tight you don’t have to find extra money to pay for the premiums when they are due, although paying this way will eat into your retirement savings.

6. Protection against bankruptcy

Holding your retirement savings in a regulated super fund generally means your super benefits are protected from your creditors if you are forced to declare bankruptcy.

This protection can be important (particularly for small business owners and professionals) in the event something goes wrong with your finances. If your savings are held outside the super system, your bankruptcy trustee is free to use them to repay your creditors.

Any superannuation payments you receive before you go bankrupt, however, are not protected.

7. Free money from the government

To encourage you to save for your retirement, the government offers some super freebies if you’re eligible.

If you choose to make non-concessional (after-tax) contributions into your super account during the financial year, you could receive a bonus top-up from the federal government called a super co-contribution. Depending how much money you earn, this co-contribution is tax-free cash paid directly into your super account to boost your retirement savings. To receive the co-contribution, your super fund must hold your tax file number.

There is more free money on offer if you’re eligible for the Low Income Superannuation Tax Offset (LISTO). If you’re eligible and earn up to $37,000, this is a payment of up to $500 from the government directly into your super account.

8. Tax-free income in retirement

Once you retire on or after age 60, you are normally eligible to receive your super pension or lump sum without paying tax. If you retire before age 60, you may be required to pay some tax on your savings. 

In retirement, the super system offers some valuable benefits:

• Regular income payments paid tax free if you decide to start an account-based super pension
• No tax payable on the investment earnings or capital gains on the investment assets supporting your super pension.

Although the investment earnings supporting a retirement phase super pension are exempt from tax, there are limits to the amount you can transfer into retirement phase. From 1 July 2021, the lifetime limit you can transfer (called the general Transfer Balance Cap) is $1.7 million.

9. Continuing insurance cover

Most large super funds allow you to continue your insurance cover even if you switch employers or industries. Although this doesn’t sound important, it can be a valuable benefit if your fund offers its members high levels of insurance cover that are difficult to obtain elsewhere.

Even if you stop being a member of your super fund, many insurers offer you the option of continuing your existing insurance policy at your own expense by switching it over to a personal policy. This allows you to obtain the same level of cover without having to produce evidence about your health or medical history.

10. Ability to invest in bigger assets

Super also gives you the opportunity to invest like the big investors. By pooling your retirement savings with other members in a large super fund or SMSF, you can invest in assets you wouldn’t be able to access as an individual investor.

With a bigger pot of money available, super funds can make investments that are difficult for individuals with smaller sums to invest, such as taking stakes in a motorway, office tower or wholesale investment such as corporate bonds. In fact, many of the big deals are never offered in the public market and are only available to large institutional investors like super funds and investment banks.