3 enriching phases of superannuation: what you should know

In 1992, the Australian Government introduced the compulsory Superannuation Guarantee (SG) to pay a percentage of all workers' wages into a super fund that would be invested and 'preserved' for them until retirement. Margaret McKay explains the 3 phases of superannuation that you need to understand to take advantage of it.

By Margaret McKay

Superannuation was introduced by the federal government in 1992 to ensure workers in Australia could accumulate savings for retirement.

Back in the old days, only 3% of wages were mandated to be put into superannuation, but today employers must contribute 11% of a worker’s ordinary earnings. The Australian Tax Office (ATO) will take action against employers if they fail to meet their superannuation obligations.

The Australian government's superannuation vision was to create a ‘3 pillar’ retirement income system consisting of compulsory superannuation, the age pension, and voluntary retirement savings (or other investments, outside of super).

The superannuation component also has 3 phases:
• accumulation
• transition
• deaccumulation

But what do these 3 phases mean? Read on to understand superannuation.

Unlock your superannuation clock: the 3 financial stages of super

Phase 1: accumulation phase

This is the initial period while you are still working, when your employer is making 11% ordinary time contributions, which must be paid into your nominated superannuation fund at least every 3 months.

(Ordinary time means that the employer contribution is not paid at an overtime or penalty rate, but at the ordinary rate of pay you receive.)

You may choose to make additional personal contributions into your super fund. Any additional contributions by you will not alter the legislated amount your employer must contribute.

You may also choose a superannuation salary sacrifice arrangement where you agree to receive less income, and you direct your employer to pay the difference into your superannuation fund. This has the benefit of reducing your gross income and thus the amount of income tax you will pay.

Read more on Citro's Calculating Super guide.

Understand the 6 checks you should make on your superannuation statement while you are in accumulation phase.

Phase 2: transition-to-retirement phase — this one is optional

Known as the transition to retirement, this is an optional phase that allows you to access part of your super while still working.

Most people do this after they hit their 50s or 60s. You may have decided, for example, to reduce your work hours as you age, and consequently your income will reduce accordingly, so you may need a little extra from your super to meet your regular debts.

To participate in the transition phase, you will need to have reached your preservation age (which is not the same as your pension age) and is determined by your year of birth.

Date of birth Preservation age

Before 1 July 1960 - 55
1 July 1960 – 30 June 1961 - 56
1 July 1961 – 30 June 1962 - 57
1 July 1962 – 30 June 1963 - 58
1 July 1963 – 30 June 1964 - 59
After 30 June 1964 - 60

(Under certain limited conditions, including medical, compassionate, incapacity and hardship grounds, you may be able to access your superannuation earlier.)

Having reached the preservation age, you can set up a transition-to-retirement income stream (TRIS), which is a regular payment to you from your super fund.

The TRIS will help you reduce your working hours as you approach your retirement, allowing you to slow your pace of work as you get older.

The TRIS will cease and the full retirement phase begins at 65 years of age or at retirement. It is also possible to initiate a TRIS if a worker becomes permanently incapacitated or is diagnosed with a terminal medical condition.

Read more on moneysmart about transition to retirement.

And then, yay! It’s retirement day, and you enter the …

Phase 3: deaccumulation phase

You’ve ceased working, you’re about to kick up your heels, have fun in the sun, and enjoy the fruits of your labours, utilising your employers’ superannuation contributions, and perhaps your own supplementary funds.

Also known as the retirement phase, this is the final phase when you withdraw your super as a lump sum or income stream, or a combination of both. An income stream may also be called a pension plan, which should not be confused with a government aged (or other) pension.

There is no compulsion to withdraw your superannuation funds. They may stay untouched in your superannuation fund until death, at which time your accumulated funds, with accrued interest, will be paid to the named beneficiary.

If you’re planning to withdraw your funds as a lump sum, a considerable amount of money may be coming your way. You will want to protect it, and ensure you’re funded adequately for your living expenses. Seeking professional financial guidance is wise.  

Read more on how your super becomes an income.

A cautionary tale – scammers

We have all read of retirees who, having taken their lump sum super, were scammed out of the whole sum or a large part of it. How utterly sad, after their years of work and saving.

A typical scammer offers to help you set up a self-managed superannuation fund (SMSF), and a seemingly very nice person will offer every assistance to you to transfer your retirement funds into their unbelievably profitable fund.

If it sounds unbelievable, it probably is. They will offer extremely high return investments, and provide you with fake performance statistics, and even a fake website.

Be wary, check credentials, and the financial advisor’s bona fides with the Australian Securities and Investment Commission (ASIC) Financial Adviser Register.

Now, go and enjoy the rewards of your many years of toil – you worked for it, you deserve it.

^{Advice given in this article is general in nature and does not take into account your personal circumstances. It is not intended to influence readers' decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.}