Superannuation is a type of retirement saving that can be paid to someone other than the employee while they are still working. The superannuation fund is built up over time by employers, employees and the government through contributions and tax concessions.
Superannuation accounts are a popular way for private sector employees to save for their retirement. They tend to have higher returns than bank accounts or building societies because they are not taxed as much as other investments.
The amount you contribute into your superannuation account depends on how much you earn and how long you intend to work for an employer or self-employed business.
What are the different types of superannuation?
- Defined Benefit
A defined benefit pension is a pension plan that guarantees an individual or couple an income for life, as long as they remain employed by their employer. The amount of this income will vary depending on the employee’s age at retirement and the level of contributions made by the employer over their working lifetime. This type of pension plan is taxed as a final salary scheme and requires employers to make contributions.Under this type of scheme, you receive a certain amount at retirement, based on your salary and years of service. You can choose to take the money as cash or buy an annuity with it.
- Defined Contribution
With a defined contribution pension, individuals are not guaranteed a specific amount of money upon retirement; instead, they manage their own investments in a fund that provides investment returns on an independent basis from their own savings and investments. These funds can be invested in both domestic and foreign assets, including shares, bonds and property. Defined contribution (DC) plans offer you the flexibility to choose how much you want to contribute to your super fund each year and how long you want to stay in the scheme for. The amount you contribute is not guaranteed, but it’s usually between 4% and 12%.
In this scheme your employer matches up to 100% of your contributions into a fund that they manage on your behalf and which they will then pay out as your retirement benefit when you retire. There are no guarantees on how much they will pay out, but this type of plan provides flexibility as there are no restrictions on how much can be invested or how long it must last.
What are the common types of annuity options inside superannuation?
Superannuation is an important aspect of financial governance hence it is always part of all the important legislations like payment of bonus act. This is why to serve all aspects of society there are many different types of superannuation. Let’s discuss some of those:
- Deferred Annuity or Pension
It is a type of annuity in which the money is paid to you periodically until you die. It is a form of pension plan that provides retirement income for life, usually in the form of a defined contribution plan.
- Payable for Life
This means that you pay into the Superannuation Fund each month and when you retire, the fund pays you an annuity based on your age at retirement, with an initial payment once you reach retirement age (60 years). The annuity payments continue until you die or until stopped by another person (if you have designated someone else as your beneficiary).
- Return of Corpus
This type of annuity involves paying back the corpus of your superannuation account after death by withdrawing some or all of its value over time, rather than paying out monthly benefits to yourself or others during your lifetime.