And its not as hard as you may think. Contrary to some public opinion, Superannuation can be a wonderful long term savings vehicle with an enormous amount of choice in how you go about it. You just need to get your head around some big picture concepts, and take it all one step at a time.
Superannuation is predominantly about this one big question:
"What are you going to do for money once you retire?"
choices are generally going to be:
- Earn income
from investing the capital you have accumulated during
your working life
get a full or part Age pension from the Government
- A combination
of the above two (if eligible).
are two major problems with reliance on the Age Pension.
Firstly, its just not a lot of money. Its only around
25% of the average wage. So right now, try living
on about $15,000 a year, or $25,000 for a couple and see
how you go. Secondly, with the Ageing population, the
affordability for the nation in supplying these payments
in the future will be very stretched due to a smaller
number of people working, and hence less taxes available
to pay for the higher number of people getting the Age
A super fund is simply a long term savings vehicle which has a range of very generous tax concessions, including when money goes in, while it is invested, and when it comes out as an income stream. The flip side is that there are restrictions on when you can access your money, to ensure that its kept safe and sound until retirement (or in the event of death or disability). It is the Governments way of trying to get us to save as much as possible for retirement, and reduce the future strain on the Age pension system. Please note that for a super fund to receive the generous tax concessions available, it must be a complying super fund, which means that it strictly complies with all the relevant laws set down under the SIS act, and any prudential standards set by the regulators. For more information on the taxation of a super fund, please refer to our SMSF Technical Education & Strategies section.
Part of the Governments policy to ensure that as many people as possible have money going into superannuation every year is the superannuation guarantee contributions (SGC) system. Basically, your employer is required to pay 9% of your ordinary time earnings (up to a limit) into your super fund each year. Your employer or yourself may pay in extra (again, up to a limit) at any time. For more detailed info on contributions and the tax benefits, see our articles in the SMSF Technical Education & Strategies.section. Since July 1st 2005, most employees have been able to choose the super fund where their employer makes these contributions, which includes DIY / Self Managed Super Funds.
you've now got a handle on what Super is all about and
why its important. The most obvious thing now is how to
choose the right super fund for you.
This has two
Firstly, there are two major types of super funds. They are:
funds where the final benefit is simply the final account balance.
That is, the sum of all the contributions made, plus investment
earnings, minus tax and fees over the years.
is the main type of Super fund in Australia.
This is the main type of Super fund in Australia.
benefit funds where the final benefit is based on some sort of formulae,
such as a multiple of final average salary.
Next, there are the following sub-groups of super funds:
(also known as SMSFs)
(b) Public sector funds
(c) Industry funds
(d) Retail funds
(e) Wrap Super Platforms
(f) Small APRA funds
(g) DIY / Self Managed Super Funds
(also known as SMSFs)
Depending on when you read this, there is around about $1 trillion in the Superannuation system in Australia. And as of 2008, the most amount of this money resides in SMSFs, at around about $350 billion. For a number of years, SMSFs have been the fastest growing segment of the Superannuation system, and right now, that does not look like changing anytime soon.
The rest of this website deals with providing information specifically for trustees of DIY / Self Managed Super Funds.
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