Australian Superannuation

Superannuation is one of the three pillars of the Australian retirement income framework, the others being the age pension and personal savings.

Superannuation is one of the few significant tax reduction areas for PAYG taxpayers.

It is now generally available to all employees.

New superannuation legislation was introduced in September 2017.  Click here for more details.

About Commonwealth Superannuation

Superannuation for Australian (and territory) Government employees became available in 1922 with the commencement of the Commonwealth Superannuation Scheme (CSS). There have been many changes to the original CSS since 1922, the most notable being in 1976 when the CSS was changed from a unit of pension purchase scheme to a hybrid accumulation/defined benefit scheme. The member component of the CSS is an accumulation fund while the employer component is a defined benefit based on salary, age at retirement and length of membership, and payable from Government revenue in the form of an indexed pension.

The CSS was closed to new members from 1 July 1990 following the commencement of the Public Sector Superannuation Scheme (PSS). The PSS is a defined benefit scheme with benefits based on a formula comprising contribution rate, period of membership and salary. It closed to new members in 2005 with the commencement of the PSS accumulation plan (PSSap).

The PSSap is a fully funded taxed superannuation fund, with each Commonwealth employer agency paying 15.4% of the member’s salary into the PSSap. PSSap members are not required to contribute to this superannuation fund, but they have an option to make after-tax contributions through deductions from pay or by salary sacrificing from pre-tax salary.

Commonwealth Superannuation Corporation (CSC)

The Commonwealth Superannuation Corporation (CSC) is responsible for the management of the assets of the CSS, PSS, PSSap and 1922 schemes, as well as the military superannuation schemes, as well as the administration of all those schemes.  CSC also administers relevant legislation. For more about CSC go to www.csc.gov.au

Go to www.csc.gov.au where you will find links to all the schemes, or go to our links page where you will find links to all of the above.

Pillar

Pillar administers the PSSap scheme. For more about PIllar, go to www.pillar.com.au

Superannuation Contributions

Under age 65

Anyone under age 65 is eligible to make superannuation contributions to a complying superannuation fund.

Concessional contributions

Concessional contributions are contributions made from a person’s before-tax income. If the person is not in paid employment, or is in paid employment but also receiving income from other sources, then they are eligible to receive a tax deduction for making personal superannuation contributions up to the concessional contribution cap (see below).

Superannuation contributions paid by an employer, superannuation guarantee contributions and salary sacrifice superannuation contributions are also concessional contributions and count towards the concessional contribution cap.

The superannuation fund receiving the concessional contributions is required to deduct 15% contribution tax.

If the concessional contributions cap is exceeded, additional tax of 31.5% is applied to the contributions exceeding the cap.  The amount of excess contributions also counts towards the non-concessional contribution cap.

If you have gone over your concessional contributions cap by $10,000 or less, you may receive a once-only offer to have the excess concessional contributions refunded to you and assessed at your marginal tax rate, rather than pay excess contributions tax.

For further details, see www.ato.gov.au

Non-concessional contributions

Non-concessional contributions can also be made to a superannuation fund from your after tax income.  A tax deduction cannot be claimed for non-concessional contributions.  There are no restrictions on making personal non-concessional contributions up to the annual non-concessional contribution cap (see table below), but there is a cap on the total superannuation balance. This cap is $1.6 million from 1 July 2017.

If the non-concessional contribution cap is exceeded, tax is levied at the top marginal tax rate on the amount of contributions exceeding the non-concessional contribution cap.

Contribution caps

The information in the following tables applies to financial year 2017-18.

Concessional contributions (made from your before-tax income)

From 1 July 2017, the concessional contributions cap is $25,000, regardless of age.

*Those over 65 must meet the work test of 40 hours within 30 consecutive days. Only superannuation guarantee contributions can be paid over age 75.

Carry Forward Concessional Contributions

From 1 July 2018, if you had a total superannuation balance of less than $500,000 at 30 June in the previous financial year, you may be entitled to contribute more than $25,000 using the carry-forward amounts of your unused contributions. The first financial year that you can do this is 2019-20. Unused amounts expire after five years.

Non-concessional (made from your after tax income)

 Age Period Amount of cap
Under age 65 For one year $100,000
Under age 65 For one year and bring forward 2 years $300,000 if balance < $1.4m
Under age 65 For one year and bring forward 1 Year $200,000 if balance < $1.5m
Under age 65 For one year only $100,000 if balance < $1.6m
Age 65 to 75* For one year $100,000

* Must meet the work test of 40 hours within 30 consecutive days.

Superannuation benefit payments

Lump sum low rate cap amount

Age Amount of cap
Age 55 to 59 $195,000 for 2016-17

Lump sum untaxed plan cap amount

Age Amount of cap
All ages $1,415,000 for 2016-17

Minimum annual pension payments

Age Minimum percentage withdrawal (of super balance in a financial year)
Under age 65 4%
65 to 74 5%
75 to 79                                    6%
80 to 84 7%
85 to 89 9%
 90 to 94 11%
95 and over 14%

Employment termination payments

Employment termination payment cap

Age Amount of cap
All ages $200,000 for 2017-18


Superannuation income streams (pensions) – how they are taxed

Pension paid from a taxed source, that is out a superannuation fund, member and funded productivity component of a PSS pension

Age of recipient Income stream (pension)
60 and above Tax free – not assessable income
Under 60 but at least preservation age Taxed at marginal tax rate less tax offset of 15%
Under preservation age Taxed at marginal tax rate; tax offset of 15% applies if pension is an invalidity pension

Pension is paid from an untaxed source, that is, not out of a superannuation fund, such as CSS indexed pension and the unfunded employer component of a PSS pension.

Age of recipient Income stream (pension)
60 and above Taxed at marginal tax rates less tax offset of 10% (except that part of the pension that exceeds $100,000 which is taxed at marginal tax rates
Under 60 but at least preservation age Taxed at marginal tax rates
Under preservation age Taxed at marginal tax rates

Tax free bona fide redundancy component

Tax free component $9,936 for 2016-17                                                                
Plus for each completed year of service $4,969 for 2016-17

Co-contribution income thresholds

Lower threshold $36,021 for 2016-17
Upper threshold $51,021 for 2016-17
Maximum payment $500 if you make personal contributions of $1,000
Matching rate 50%

Low income superannuation contribution (now to continue to 2016-17)

Government payment is 15% of concessional contributions paid.
Maximum payment $500
Maximum income $37,000

Superannuation guarantee contributions

Superannuation guarantee rate 9.5%
Maximum quarterly contribution base $52,760 for 2017-18

Work test for people aged 65 to 74

People aged 65 to 74 have to satisfy the work test in each financial year that a contribution is made to their super.  The work test requires them to be gainfully employed.  To satisfy the work test, they must work for at least 40 hours during a consecutive 30 day period each financial year.  Unpaid work does not meet the definition of “gainfully employed”.

Their fund can accept compulsory super contributions made by their employer and also other types of employer contributions, as well as contributions made to their super fund by anyone else;  for example personal contributions made by themselves, or contributions made for example by their spouse.

People 75 years or older

Currently, people aged over 75 years are generally unable to make super contributions.  However, there is no age limit for superannuation guarantee contributions paid by their employer.

Transition to Retirement Income Streams

Transition to retirement provides more options for superannuation fund members making the transition from work to retirement. Where a person has reached their preservation age (see below), they can access their superannuation in the form of an income stream (pension) without having to retire or leave their current employment.

There is no requirement to reduce from full-time to part-time to be eligible to access a pension from their superannuation fund.  A person could work part-time and use part of their superannuation to supplement their income.  All that an eligible superannuation fund member needs to do is ask their fund to commence paying them a pension.

These arrangements are generally available to all members of taxed accumulation superannuation funds who have reached preservation age.  Superannuation fund members should check with their superannuation fund to establish if their fund provides such a pension.

Transition to retirement pensions are available for CSS members in certain circumstances such as where a CSS member is able to cease membership of the CSS without ceasing employment.  This option is available to ACT Government employees and those CSS members who are employed by agencies that no longer participate in the CSS.

Transition to retirement pensions are not available to members of the PSS.

The PSSap recently launched its account based pension product which enables PSSap members to draw down a transition to retirement pension provided they meet the relevant criteria.

Taxation of Transition to Retirement Income Streams (TRIS)

Before 1 July 2017, where a member received a TRIS, the superannuation fund received tax-free earnings on the superannuation assets supporting it. From 1 July 2017, earnings or assets supporting a TRIS will be taxed at 15% regardless of when the TRIS commenced, and members will no longer be able to treat superannuation stream payments as lump sums for taxation purposes. Note that a TRIS is not automatically converted to a retirement stream when you cease employment or reach 65.

 Preservation Age

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 to 30 June 1961 56
1 July 1961 to 30 June 1962 57
1 July 1962 to 30 June 1963 58
1 July 1963 to 30 June 1964 59
After 30 June 1964 60

Downloads

Issues for Cwlth Super Pensioners May 2016           Issues relating to Commonwealth Superannuants (May/June 2016)
Superannuation and Marriage Breakdown Read how the Family Law Act 1975 provides arrangements for splitting superannuation entitlements resulting from marriage breakdown including the breakdown of de facto relationships.
Superannuation changes in 2016-17 Federal Budget This is a copy of the paper presented by Trevor Nock at the May 2016 Federal Council Meeting summarising the 2016/17 Federal Budget measures relating to superannuation