Superannuation is the money put aside for retirement. For most Australians it is the primary investment vehicle used to fund their retirement. It is a nest-egg built over the course of working careers, incentivized by the Government in order to promote wealth creation. Superannuation has the lowest tax rate of any alternative.
When your money has been put into a superannuation fund the fund then invests it into different types of assets. These include:
- Defensive assets (cash, fixed interest – in Australia or overseas), and
- Growth assets (Property, shares – Australian and International)
It is vital that you are comfortable with the way your money is invested and that it is appropriately diversified to match your risk profile.
Benefits of Superannuation
There are many benefits of superannuation. they include:
- Tax deductions
- Favourable tax rate on earnings and capital gains of super funds (15%) – a rate lower than most of the person tax rates.
- Rebates if you are an employee (this is means tested)
- Extra benefits at retirement
Other benefits include:
- The ability to use pre-tax money to access life insurance and disability cover (total and permanent disability – TPD)
- Asset protection – assets in superannuation can be protected from creditors i.e. bankruptcy
- Estate planning
Common questions Australians have about superannuation:
- I have several super funds – should I, and how do I, consolidate?
- Is my super fund right for me?
- Is my money invested in the right way? Am I taking too much or too little risk?
- Is it better for me to pay money into superannuation or pay off my mortgage?
Self-managed superannuation funds (SMSF) are growing in popularity. They provide more freedom to investors including the ability to borrow money, buy artwork and directly invest in property. This freedom makes them the fastest growing area of superannuation in Australia. The market share of a SMSF is approximately 29% which is in excess of $578 billion^.
The benefits of a SMSF can be:
- Increased control – you get to decide where your money goes
- Increased Investment choice i.e. direct property
- Economies of scale – the bigger the SMSF the lower the fees
- Can have up to 4 members (for example husband and wife)
- Leverage – can borrow money to invest
The downside scan be:
- Higher fees
- An increased burden of compliance
- The potential of increased time and effort
^ASFA – The Voice of Super – Superannuation Statistics December 2015