LEGISLATION was introduced into Federal Parliament this week to increase compulsory employer super guarantee contributions from 9 per cent to 12 per cent. This will be done in increments over the next seven years if the legislation passes both houses. The age limit of 75 for making contributions would also be removed.
Q If an employer fails to comply with the super guarantee rules and a penalty is applied, where does the extra money go?
AThe administration charge of $20 an employee, when an employer does not meet superannuation guarantee responsibilities, is retained by the Australian Taxation Office. The interest charge is forwarded to the employee's superannuation fund.
QMy student daughter did some holiday work that ended with her having $540 in Hostplus. She has no intention of resuming part-time/holiday work in hospitality. A recent super statement showed earnings of $1.42 and charges of $74. The $74 in fees on a $540 account seems expensive. Is it possible to have accounts paid out that are inactive, going backwards and involve small amounts?
AA member can access their superannuation when they have not reached retirement age if the benefit is less than $200. The fees levied by your daughter's fund do not appear excessive but should not have exceeded the income earned by the fund. There is protection in the super regulations for accounts with less than $1000. Under these a super fund cannot charge an administration fee that exceeds income earned.
In addition to an administration fee, an account can also fall because of tax payable on employer contributions and because of insurance premiums. Your daughter should check to see if insurance is part of her account and, if she doesn't want it and the fund to go backwards, request its removal.
QI am 73 and have a self-managed super fund and about $400,000 in an industry super fund. The SMSF is in pension mode while the industry fund is still in accumulation mode.
As the returns on the SMSF are considerably better than those from the industry fund, I am considering rolling the latter into my SMSF. If I do, do the proceeds of the industry fund automatically have to go into pension mode, or can it can remain in accumulation mode?
AIf you rolled over the balance in the industry fund into your SMSF it would not automatically go into pension phase. Instead, it would go into an accumulation account in the fund. It would make sense to set up a new bank account that the proceeds of the rollover would be banked into.
By keeping the rollover funds in the accumulation account, you would not be forced to pay a minimum pension that could exceed the income earned by the investments of the funds. The downside of not having the rollover funds in pension phase is the tax payable on the income earned by investments allocated to the accumulation account.
Questions can be emailed to super@taxbiz.com.au
Max Newnham's book, Funding your Retirement A Survival Guide, is available in bookstores and as an e-book.
Frequently Asked Questions about this Article…
What does the new legislation say about increasing the Superannuation Guarantee (SG) rate?
The proposed legislation would lift the compulsory employer Superannuation Guarantee from 9% to 12% in stages over the next seven years if it passes both houses of Parliament. The bill would also remove the existing age limit of 75 for making contributions.
If an employer doesn’t meet Superannuation Guarantee obligations, where do penalty payments go?
According to the article, the $20 administration charge applied when an employer fails to meet SG rules is retained by the Australian Taxation Office (ATO). Any interest charge arising from the shortfall is forwarded to the employee’s superannuation fund.
Can I access a small or inactive super account before reaching retirement age?
Yes. The article notes a member can access their superannuation before reaching retirement age if the benefit is less than $200. That is the threshold mentioned for accessing small inactive balances.
Are there protections if fees on a small super account exceed the account’s earnings?
Yes. Super regulations protect low-balance accounts: for accounts with less than $1,000 the fund cannot charge an administration fee that exceeds the income earned by the account. If fees look excessive, members should check what they’re being charged.
Why might a small super account fall in value even if contributions were made?
An account can decline because of administration fees, tax payable on employer contributions and insurance premiums deducted from the balance. The article recommends checking whether insurance is attached to the account and asking for its removal if you don’t want it.
If I roll over an industry super fund into my SMSF, will the money automatically go into pension mode?
No. If you roll over the balance from an industry fund into your SMSF, the proceeds would go into an accumulation account within the SMSF, not automatically into pension phase. The article suggests setting up a new bank account in the SMSF to receive rollover proceeds.
What are the trade-offs of keeping rolled-over funds in an SMSF accumulation account instead of moving them to pension phase?
Keeping rollover funds in accumulation avoids being forced to pay a minimum pension that could exceed the income earned by the fund’s investments. The downside is that income allocated to the accumulation account will be subject to tax, whereas pension-phase assets may have more favourable tax treatment.
Where can I get more help or read further about retirement and superannuation?
The article lists an email for questions: super@taxbiz.com.au. It also references Max Newnham’s book 'Funding your Retirement — A Survival Guide', which is available in bookstores and as an e-book.
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