Superannuation funds are designed to accumulate capital during a working lifetime in order to provide income after retirement, and therefore it is the corner stone of an effective retirement plan instead of relying on Centrelink benefits.
There are many strategies to grow your super funds, either for high income earners or low income earners.
Superannuation savings are generally considered a tax effective investment. Income and capital gains of a complying superannuation fund are generally taxed at no more than 15%. This rate can be reduced further by share dividend imputation credits. On the other hand, income and capital gains form investments outside of superannuation are subject to taxation at your highest marginal tax rate. Earnings within superannuation, even if they are taxed at 15%, do not increase your income to effect income tax payable.
If however the assets are used to pay a pension (from age 60), then your regular income payments/lump sum payments will be tax-free and the rest could attract a 15% tax rebate (from age 55 to 60).
However, there are very strict rules to contribute money into super funds, otherwise you may subject to pay tax at a penalty rate of 31.5%.
Contributions could be as follows:
- Employer contribution,
- Self-employed and/or employee contributions,
- Salary sacrifice,
- Spouse contribution,
- Personal non-concessional contribution,
- Government co-contribution.
Superannuation fund benefits are generally not assessed under the social security income and asset tests until age pension age.
One common myth believed by many people about superannuation is that it is not about their money. Many people see superannuation as some deep pit that their money is thrown into, never to return. Of course this is not true. What people put into superannuation remains their money. In fact what it earns also becomes their money, and for many clients this will be the money that they will live on in retirement. As Australia’s population ages, the capacity of the Government to provide a pension will diminish. For many people retirement is a time when they want to sit back and bask in the fruits of their labour. Surveys conducted by interested parties such as the Government and financial planning groups show that the majority of people only consider planning for their retirement when they are within five to 10 years of event. Far from giving their money away, they are in fact minimising the effect of the two driving forces behind wealth creation via superannuation – tax concessions and compounding returns.
This information is of a general nature only and does not take into account your personal situation. We advise that you seek advice from a professional adviser before making any decisions about a financial product.