Superannuation
WHAT IS SUPERANNUATION?
Superannuation, or ‘super,’ is a special form of saving for your retirement. It has a number of advantages and these advantages mean that superannuation should be a key ‘plank’ of your financial planning.
GUARANTEED SAVINGS FOR EMPLOYEES
Most employed people are entitled to receive ‘superannuation guarantee’ payments from their employer. These payments are typically calculated as (at least) 9.5% of the employee’s salary or wage.
The payments are made into a super fund and the employee – you – cannot normally access them until you have reached retirement age or you have met some other ‘condition of release.’ This is one of the key advantages of super – it is a form of forced saving and, without it, many people would not save anything at all.
LONG TERM PLANNING
Super contributions happen over a long period of time. Then, when we retire, hopefully this is a long-term situation as well. This means that money held in super can and usually should be invested for the very long-term. This usually lets people favour more growth-oriented investments within super, as the long timeframe lets much of the risk associated with growth investing be managed.
WORK FOR YOURSELF?
If you work for yourself, then you need to remember to make super contributions for yourself as well. Many employers forget the most important person in the business – themselves!
Super can have additional benefits for a self-employed person. These benefits include asset protection and enhanced tax planning. So, if you are self-employed, then super should be even more critical to your financial planning. Make a time to meet a financial adviser today – and ensure that you and your loved ones enjoy the long-term benefits of all of your hard work.
TYPES OF SUPER FUND
There is more than one type of super fund, and different types of fund suit different types of member. What’s more, different types of fund might suit the same person at different times in their life. But the system can be complicated, so we always recommend that you seek financial advice to ensure that your super is being managed in a way that best suits your personal circumstances.
SELF MANAGED SUPERANNUATION
A self managed superannuation fund (‘SMSF’) lets you take control of your retirement savings. Many people find this an enjoyable and cost-effective way of planning for their retirement. They also enjoy ensuring that their super planning complements all their other financial planning.
TRUSTEES AND MEMBERS
A trustee of a super fund is a person who manages the assets of that fund on behalf of the members. In an SMSF, the members of the fund are also the trustees. Most SMSFs are run by people from the same family.
An SMSF can have between one and four members. They can either be trustees in their own right (if there are two or more members) or directors of a company which acts as a trustee. Either way, the critical element is that the members of the fund control the fund.
Trustees can outsource some or all of the work of managing the fund – but many like to be truly hands on!
REGULATION
SMSFs are regulated by the Australian Tax Office (‘ATO’). An SMSF must be audited each year, and must keep adequate records to allow the auditor and the tax office to calculate member benefits and tax liabilities.
HOW MUCH DO I NEED TO START A FUND?
This will depend on how you intend to run the fund. Many people use the total benefit figure of $200,000 as a guide, but it is also possible to start a fund with less than that. For example, if you would like to borrow to buy an asset such as property, then you might simply need enough to pay for the deposit within super.
HOW DO I START MY OWN SUPER FUND?
The best way to start a new SMSF is to see a financial adviser. The adviser can help you decide whether an SMSF makes sense in your situation, and can assist you to get all the legal arrangements in place. Once the fund is up and running, an adviser can help you with all aspects of the fund, from the fund’s administration to managing its investments.
HOW POPULAR ARE SMSFs?
More than 1 million Australians use an SMSF, and the average balance of assets within an SMSF is more than $1 million (source: APRA). Together, SMSFs hold almost 30% of the superannuation assets of all Australians.
