Superannuation is the cornerstone for fulfilling your retirement dreams. By effectively planning your superannuation contributions, you can plan to have sufficient savings to provide for your daily living expenses plus your special retirement plans (eg. a holiday or buying a boat). Superannuation can seem confusing sometimes, can’t it?
Legislation is always changing and you just can’t keep on top of all the rules and regulations. Your financial planner can help you put in place a plan that will assist you to be financially prepared for an enjoyable retirement.
*Australia Now , A Statistical Profile, Income and Welfare (Household Income), ABS, www.abs.gov.au, March 2000
What is Superannuation?
Superannuation is a vehicle for saving money, while you are working, to fund your retirement. There are four main types of superannuation contributions to cater for different people and employment types. In addition there is what’s known as the Government Co-Contribution and Salary Sacrificing.
In Australia, the Superannuation Guarantee (SG) Act requires most employers to contribute to superannuation on behalf of employees. Through the SG legislation, the government is aiming to have most Australians self-fund their retirement rather than rely on social security. Contributions made on your behalf are called “employer funded or SGC contributions”.
Like you, many Australians recognise that in order to live the lifestyle they want in retirement, they can’t rely solely on their employer’s superannuation contributions. When you contribute additional amounts (beyond the amounts that are compulsorily contributed to superannuation by your employer - 9% from 1 July 2002 ), these contributions are known as “employee funded” contributions.
Self employed person may also make superannuation contributions which may be deductible to them up to certain limits.
A person may also make after tax contributions on behalf of their spouse, under certain criteria. An increase tax rebate may be available, depending on the income of the spouse.
For those eligible, the Government will match a non-concessional contribution into your nominated super fund. To be eligible your income must be below a certain threshold.
Agree with your employer to give up part of your before tax salary, and they pay that amount into your super account. The amount you sacrifice is treated as an employer contribution and is not included in your assessable income or taxed at your marginal tax rate. Offers a maximum up-front tax saving of 31.5 per cent (including Medicare levy) in 2010-11
What Are the Benefits of Superannuation?
By putting in place a suitable superannuation strategy you can increase the likelihood of doing the things you want to do in retirement.
Superannuation is a tax-effective means of saving. Tax concessions include:
- tax deductions if you are self employed;
- means tested rebates if you are an employee; and
- favourable taxation (up to a maximum of 15 per cent) on earnings and capital gains of superannuation funds – this is lower than most personal tax rates.
In most cases your employer is required (under the Superannuation Guarantee Act) to contribute to a fund for you – which helps build your retirement savings more quickly.
Superannuation can provide you with benefits beyond savings, like access to death and disability (temporary or permanent) protection at affordable rates. This is particularly attractive where your insurance is paid from pre-tax employer or deductible member contributions.
In addition, most superannuation monies are protected from creditors.
Are Employer Contributions Enough?
The Superannuation Guarantee requires employers to contribute nine per cent (rate effective from 1 July 2002) of their employees salary to superannuation.
However, the simple reality is that your employer’s superannuation contributions alone may not provide you with a comfortable retirement. Many financial strategists suggest that at least 20 per cent of your salary should be going into superannuation savings, if you want to maintain your lifestyle in retirement.
Other developed countries such as Canada , Italy , Portugal , Spain and Singapore require that double the level of Australia ’s compulsory superannuation contribution level be directed into superannuation savings for this reason.
Do You Need Superannuation?
Superannuation is one of the simplest and most tax-effective ways of saving for your retirement.
Consider the following:
We’re living longer…
Life expectancy of a male born in 1994-96 was 75 while a female was 81 years. “ Australia Now - A Statistical Profile - Population Deaths”, ABS, www.abs.gov.au, March 2000 That’s a lot of years in retirement for most people.
We’re an aging population…
At 30 June 1998 there were 2.3 million people over the age of 65 in Australia . Whereas older people comprised 12 per cent of the population in 1998, they are projected to form almost one quarter (24 per cent) of the total population by 2051.* This means there will be fewer people in the workplace to fund social security aged pensions.
Many retirees do not have adequate savings to help fund their retirement…
In 1996-97 government pensions and allowances were the principal source of income for 66 per cent of couples and 80 per cent of singles aged 65 years and over. The average weekly income of these groups was $455 for couples (or $23 660 per annum) and $248 for singles (or $12896 per annum).**
As a consequence, the government provides significant tax incentives to encourage all of us to use superannuation to save for our retirement. Ensuring that you have adequate superannuation may be the difference between a comfortable retirement and one fraught with financial concerns.
*Older People , Australia , ABS, www.abs.gov.au, March 2000
**Australia Now , A Statistical Profile, Income and Welfare (Household Income), ABS, www.abs.gov.au, March 2000