Superannuation has been in the news constantly in recent times following the revelations of the Banking Royal Commission and also the release, in April, of the Productivity Commission Draft Report titled “Superannuation: Assessing Efficiency and Competitiveness". There have also been major super reforms enacted by the Government from 1 July 2017 and the rules and regulations seem to change constantly.
A lot of what we’ve heard has been negative. In some instances the issues raised are as a result of poor advice practices but when it comes to the constant changes announced by Government it’s hard to understand if we are being encouraged to save for our own retirement or not.
The super basics
Given all the poor publicity it’s worth revisiting exactly what the good aspects of super are.
9.5% of your employment earnings are paid to your superannuation account. While the actual payments are out of your control it is your money and you do generally have control over the fund you choose and how it is invested. You can even run your own fund by using a Self Managed Superannuation Fund (SMSF).
The fund holding this money invests it on your behalf and it grows until such time as you are allowed to access it. At that time you can use it to fund your living expenses and the things you want to do when you retire. The tax you pay on both the money going in and the income earned is taxed at only 15%. If you’re over age 60 when you take the money out, you currently don’t pay any tax.
Because of the low tax rates that apply it makes sense to take as much advantage of super as you can. It remains a very tax effective way of saving. The things you can control and which you should consider are the $ amount you can save each year in super and the rate of return (net of fees) that the fund earns.
There are caps on the amount that can be paid into super each year, currently $25,000 for concessional (before tax) contributions and $100,000 for non-concessional (after tax) contributions.
Be interested and active
From the information in the draft Productivity Commission report it appears that most people don’t take up the option of switching super funds, and there is a wide variation in the performance outcomes and fees charged by funds. These are some of the things the Government will be taking a look at.
In the meantime, consider how you can take advantage of the low tax rates that super provides to boost your savings for retirement. The earlier you start the longer your super has to grow.
Albert Einstein’s famously said, “Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t … pays it". Even small additional amounts saved in super can make a big difference to the outcome achieved by the time your retirement rolls around. The same principle applies to the rate of return earned by the fund you choose.
We’re here to help you with your general enquiries and can also offer personal advice which considers your individual circumstances.