Understanding your super

Understanding how your super works is the first step towards securing your financial future. We hope the information below will assist. And if you’d like to know more, just ask us. We’re always here to help.

How does a defined benefit fund work?

For those who work in operational fields such as policing and emergency services along with those in state education, there are defined benefit (DB) funds. If you’re a member of a DB fund, your super benefit is calculated based on:

• the percentage of your salary you contribute
• how long you are a member of the fund; and
• your final average salary when you retire.

This also means your benefit is not impacted by the ups and downs of investment markets. And, whilst you can choose the percentage of your salary you contribute within a set range, to maximise your super you need to contribute at the maximum rate throughout your membership. When you retire, this pays off as a multiple of your final average salary.

What is an accumulation fund?

The other common type of super fund is an accumulation benefit, where your super ‘accumulates’ or grows depending on:

• how much your employer contributes as Superannuation Guarantee (SG) 
• how much you contribute to your super
• plus or minus investment returns from your investment choice 
• less insurance premiums, administration,  and account keeping fees.

While your funds are subject to market volatility, an ESSSuper Accumulation Account allows you to consolidate your super¹, make extra contributions and offers the option of additional insurance cover. ESSSuper members can have an Accumulation Account in addition to their Defined benefit.

How is super taxed?

Tax can be complex. Rates and thresholds are subject to change so it’s important to understand the impact of tax on super.

For instance, concessional (pre-tax) contributions to super of up to $25,000 a year² are taxed at just 15%³. Where your combined income including concessional contributions exceeds $250,000 p.a. (including the concessional contributions you make) an additional 15% tax will apply to concessional contributions relating to the income exceeding $250,000.

If you’re in a higher income tax bracket, putting money into super may be an advantage, as it’s taxed at a rate lower than your marginal tax rate. Just remember the concessional cap includes employer contributions, salary sacrifice and any other super contributions where you can claim a tax deduction.

When can you access your super? 

Generally, you can’t access your super before you reach your preservation age, which for most people is age 60⁴, or have met a condition of release, such as serious illness. But you don’t have to access your super just because you’re eligible. While you can take the money as a cash lump sum, you can also transfer some or all of it to an income stream, that’s like your own personal pension. This can make managing your super easier and make it last much longer. 

Who gets your super if you die?

If you want control over who receives your super benefit should something happen to you, you can make a ‘binding beneficiary nomination’. You can nominate one or more beneficiaries and the proportion of your benefit they will each receive. However, binding nominations are only valid for three years, so it’s important to review them within that period.

Where can you find out more?

To help ESSSuper members make informed decisions about their future, our Member Education Consultants run regular free information seminars. If you’re interested, you can find a list of upcoming seminars here.