Superannuation or super as otherwise known can be seen as a compulsory form of retirement savings. For many Australians, superannuation will be their main form of retirement income. Superannuation forms an important part of Australia’s economy and in fact, it is one of the reasons Australia has a well developed stock market and has one of the most traded currencies in the world.
Superannuation differentiates itself from other saving plans in that it is governed by specific and rather complex rules. As superannuation is a long term investment it works off the same principles as compound interest in that the sooner you start and the more regular you can contribute the greater chance you will have at accumulating enough assets to fund your desired retirement lifestyle.
The Australian government provides significant tax concessions to encourage us to fund our own retirement. At Del Castillo Investments Corp Pty Ltd we will be able to tailor a tax effective strategy to help boost your superannuation savings.
Some of these strategies may include:
- salary sacrificing
- government co-contribution
- spousal super contribution
- salary packaging and more
What is Super?
Most Australians know that they have superannuation in place, but few can actually detail how it is invested, how you can contribute and when and how it can be accessed. For the majority of employees in Australia it is mandatory for employers to contribute 9.5% (this is set to rise to 12% by July 2022) of their salary, this is called ‘superannuation guarantee’ or SG. Over time this regular contribution as well as other funds contributed by you voluntarily will grow, the growth of your funds are dependent on how they are invested.
Superannuation is a concessionally taxed environment which means it receives special tax treatment as opposed to having your funds invested outside the structure. Apart from tax deductions available on contributions, earnings are taxed in the fund at a reduced rate of 15% instead of at your marginal tax rate plus the Medicare levy which could be up to 47%. Furthermore, a one third discount applies to capital gains within superannuation for assets that have been held more than 12 months. Your retirement benefit will also be subject to concessional rates of tax when you retire.
Types of super funds in Australia
There are different types of superannuation funds available including the following:
- Employer/corporate/staff super funds: these super funds are established by the employer for the benefit of their staff
- Personal super funds: you personally join as an individual through a super fund provider. There are many super funds available who offer a wide range of investment choices. You can speak to a financial planner about the various super funds available and which one would best suit your needs
- Industry super funds: these types of super funds were originally set up for people working in specific industries, for example, health care or hospitality. Many are now available to the general public
- Self managed super funds: also called DIY super funds, these super funds perform the same role as other super funds, by investing contributions and making them available to members on retirement. The difference is, that the members of self managed super funds (SMSF) are also the trustees. They control the investment of their contributions and the payment of their benefits. With all members being trustees, they are in a position to ensure their interests as members are protected
- Self managed super funds do not suit everyone, so before setting one up, it is advised that you seek professional financial advice first.
Securing your desired lifestyle in retirement.
Unlocking the full potential of superannuation is invaluable, rather than playing a guessing game with your retirement plans, you can engineer a plan to maximise your contributions and therefore your investment while ensuring your immediate cash flow needs are met. Without proper planning you run the risk of falling short of funds to fund your retirement needs, it is unlikely that the 9-12% superannuation guarantee contributed from your employer will suffice. You will most likely need to make additional contributions at some time to boost your retirement benefit.
Contributing to your Super
You can make personal contributions to super at any time up to the age of 65. From age 65 to 74 you can contribute if you have worked at least 40 hours in no more than 30 consecutive days in the financial year the contribution is made. From age 75, no contributions can be made.
Please note that if your employer pays your super, there is generally no tax deduction available for additional personal super contributions. If you are a moderate or high income earner you might consider salary sacrifice in order to make additional contributions to superannuation as it will likely be a tax effective strategy for you depending on your personal circumstances. If you are a low or moderate income earner you may be eligible for a co-contribution from the federal government.
However, a person who is self-employed (or substantially self-employed in that less than 10% of their assessable income and fringe benefits comes from outside employment) is entitled to claim a deduction for personal super contributions.
How we can help you with your superannuation:
With recent events and the effects of the global financial crisis together with the constant changes to Australian superannuation, it makes sense to get professional help to provide clarity and direction. As a financial planning service we would assess your current financial position and work out whether you stand in good stead to meet your personal and financial goals and whether you will have enough for a comfortable retirement. As every person has a unique sense of circumstances we will take various factors into account:
- Ability to build savings and create wealth through investments
- Protection of your family and lifestyle
- Current savings for your retirement
For more information about superannuation and whether you have enough for retirement, contact us at Del Castillo Investments Corp Pty Ltd and speak to your personal financial adviser.