Q For the last year we have been salary sacrificing 75% of our $83,000 income into super. We were told by Super SA’s Triple S that as we are an unfunded or untaxed fund and we could sacrifice all of our income if we wanted. I am 53 in June and my partner just turned 55 and we are hoping to retire when I turn 55. Are we liable for some hefty penalties, should we reduce our sacrifice level immediately so as not to be fined or are we exempt?
A You are in a unique position as you are one of a lucky few who are members of a Super fund that pays a pension (or lump sum) on retirement based on a percentage or multiple of your salary when you retire. These funds are called Defined benefit funds. The vast majority of Superannuation funds pay out an account benefit based on actual contributions received to the fund and the investment performance of the fund.
Your fund is technically referred to as an “Unfunded” Defined benefit Superannuation fund. These funds are usually State or Commonwealth government funds. What this means is that the Government (employer) doesn’t actually make contributions while you’re working (at least not for the entire employer super obligation) but pays out this money from the Government’s ‘consolidated revenue’ on retirement. Hence the contributions have not been “funded”. Members of these types of super fund are most likely to be long-term public servants. If you are in these types of funds you tend to know it!
In a quirky twist of circumstance, your Salary Sacrifice contributions do not attract the 15% contributions tax when made but rather when you leave the fund! In addition Concessional Contribution Caps do not apply. There is one restriction, your total Employer Contributions including Salary Sacrifice over your total years of membership of the fund must not exceed $1.205 million, This figure changes each Financial Year. Contributions in excess of this are taxed at 46.5%
You lucky people!
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This article was published in The Australian on 25 February 2012. For a direct link to the article click here.