Superannuation
Superannuation “super” is a way to save for your retirement. The money comes from compulsory contributions made into your superannuation fund by your employer, by law this is 9.5% of your salary, and must be paid into a superannuation account at least 4 times a year. This is similar to the American 401(k) plan or the British Pension Scheme.
Most superannuation funds work like any other mutual fund, so when comparing different superannuation funds, pay close attention to both the fund’s performance as well as fees, as the performance is reported before fees.
There are multiple superannuation funds available, and it is best to do your own research on this. We suggest having a look at this comparison website to aid you in your research.
Any half-descent superannuation fund will work because of automatic investing and the power of compound interest.
When can I access my funds?
When you reach your “preservation age”, retire, or turn 65. There are other circumstances on when you can access funds from your superannuation account early and are found here.
Voluntary Contributions
You can choose to make voluntary contributions into your superannuation account. Generally, if people are looking for consistent Voluntary contributions they will choose a salary sacrifice arrangement. If they’re looking for one-off payments, then they will opt for personal contributions. Each person’s situation is different so it’s important to do your own research.
Salary Sacrificing (Pre-Tax)
If you choose this option, you can make salary sacrificed voluntary contributions into your super fund, this may make a lot of sense depending on your situation. The advantages are
- Lowered taxable income as you are not taxed on your salary sacrificed contribution. Basically, your taxable income becomes
Taxable Income = (salary) - (super contribution) - Potentially a lower tax rate (depending on your tax bracket) as salary sacrificed super is taxed at 15%.
- Using the power of compound interest to your advantage.
As of writing this article, there is a limit of $250,000 per year on salary sacrificed super contributions.
How?
By law, all superannuation funds have forms that you can fill out to give to your employer’s payroll department. They are found on the superannuation fund’s website. The form is called “Salary Sacrifice Form”.
Personal Contributions (Post-Tax)
You can contribute to your superannuation fund using money from your post-tax (take home pay) income. You may be eligible for tax deductions and government co-contributions.
How?
You can transfer funds to your superannuation fund using internet banking. To do a tax claim, you will need to send your superannuation fund a Notice of Intent to Claim.
Self-Managed Super Funds (SMSFs)
Self-Managed Super Funds (SMSFs) are “self-managed, do-it-yourself funds”. The advantage is that the members of the funds are also the people who choose how and where to invest the funds, rather than computers matching indexes or professional investors like most mutual funds. With these types of funds, you create your superannuation fund as a trust company with the Australian Securities and Investments Commission (ASIC). After the creation of your self-managed super fund, you then decide how to invest the money contributed into it whichever way you like: shares, properties, funds, bonds, cryptocurrency, collectables etc.
It may sound attractive at first, but there are several disadvantages such as: regulatory overhead with ASIC and the Australian Tax Office (ATO), added fees, audits, potentially lower returns, and time.
For more information about SMSFs ASIC’s Money Smart site is a great place to start.
disclaimer: we are not financial advisers, as such please do your own research before taking advice from anyone. Most of the sites we’ve linked out to are government run websites. If you want a financial adviser the ASIC Money Smart Site is a great place to start.
