Superannuation, or as it is most commonly called – super, is a special way of saving to provide yourself with an income when you retire. While there are other ways of saving for retirement, superannuation saving is different because it is linked with your employment. For many Australians, superannuation will be their main form of retirement income.
The Australian government provides significant tax concessions to encourage us to fund our own retirement and a financial planner from Intellichoice will be able to tailor a tax effective strategy to help boost your superannuation savings.
Some of these strategies include:
• government co-contribution
• spousal super contribution
• self managed super funds (SMSF)
• salary packaging and more
What is Super?
Most Australian employees receive an amount of 9% of their salary, called the 'superannuation guarantee' which is contributed to a super fund by their employer. While you are working, your super savings grow because money is paid into your super account regularly, which can be invested through your super fund.
Superannuationis a tax advantaged place to save and invest for your retirement. 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 48.5%. Most capital gains in super are also taxed at an effective reduced rate of 10%. Your retirement benefit will also be subject to concessional rates of tax when you retire.
Please also ensure that your Tax File Number (TFN) is provided when setting up your super fund. When a TFN has not been supplied to your super fund, concessional contributions (such as the 9% Superannuation Guarantee and salary sacrifice contributions) will be taxed an extra 31.5% (a total of 46.5%). Also, funds may not be able to accept voluntary member contributions if you have not provided your TFN.
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.
Your employer will usually make superannuation contributions on your behalf as a result of the Superannuation Guarantee Charge (SGC). However, the level of this contribution at 9% of your salary is unlikely to be sufficient to meet your retirement needs. You will most likely need to make additional contributions at some time to boost your retirement benefit.
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. As with employer contributions there is a limit that depends on your age, on the amount you can claim each financial year.
For more information about superannuation and whether you have enough for retirement, speak to an Intellichoice financial planner on 1300 55 10 45 or email us directly and one of our financial advisors will be in touch with you within 24 hours. Alternatively, please view the finance FAQs for an overview of some common questions about superannuation.
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.
How can a financial planner help me?
With everything that has happened with Australian superannuation, it's only natural you get some professional financial advice to help make sense of everything. A qualified financial planner will assess your current financial position and work out whether you are on track to meeting your personal and financial goals and whether you will have enough funds for a comfortable retirement. A financial planner will take the following things into account based on your unique situation and circumstances:
• A strategy to build savings and create wealth through investments
• Protect your family and lifestyle with an appropriate insurance plan
• Save for your retirement
To find out how an Intellichoice can financial planner can help you grow your superannuation funds for retirement and reduce your tax, call 1300 55 10 45.