Superannuation is the regular, monetary contribution paid on behalf of your employer into a nominated Superannuation fund. A Superannuation fund acts like a pension and is usually paid at retirement. In Australia, Superannuation arrangements are Government supported and encouraged. If you are an employee aged between 18 – 70 years of age and earn at least $450 per month, your employer is required by law to make regular superannuation contributions equal to 9% of your ordinary earnings. If you wish, you can elect to make additional voluntary payments into your super fund.
There are many great tax breaks for super contributions including tax concessions on contributions, low tax rates on super’s investment earning and special tax breaks available on superannuation pensions. It is a system that enjoys generous tax support.
Why We Need Superannuation
Most of us would like to live on more than just the age pension when we retire. By forcing us to save, Superannuation financially prepares us for retirement and enables us to meet our financial goals. Superannuation allows us to turn a small amount of regular savings into a larger amount over the long term. For this reason, it can be viewed as our most important investment. The amount of Superannuation you receive at retirement depends on the amount you contribute, how long it has been in the account and the rate of return.
Superannuation is held in many different superannuation funds established by individual businesses or major financial institutions. The fund can be private entry only or be open to the general public.
Some employees have the option of choosing which superannuation fund they would like their employer to contribute to whilst other employees require employers to contribute to a particular fund.
Types of funds include Industry funds, Retail funds, Employer Stand-alone Funds or Self-managed funds.
Selecting a Superannuation Fund
Choosing a super fund is the most important decision you will make regarding your superannuation. Like shares and interest rates, super funds are subject to fluctuation on returns so it is important to have expert advice and choose carefully. (For expert advice please contact us). It is important to ensure your fund meets your long term needs and goals. With this in mind, you change and consolidate funds at any time. (For assistance please contact us).
Some factors to consider when choosing a super fund are:
The mix of investments and available range of investment options
Does the fund have a good track record?
The level of life and income protection included
Managing your Superannuation options
Superannuation funds are managed by experts, known as investment managers. The investments manager’s job is to ensure your money gets the best return possible. In most superannuation funds, you have the option of choosing the type of investment and the balance between its risk and return.
The level of risk is based on the investment mix or risk profile within the fund. The risk profile consists of varying proportions of asset classes with the main asset classes being cash, fixed interest securities, property or shares. Understanding the different asset classes and their risks will assist you in making a decision on which investment suits your needs and goals. By investing in more than one asset class you may reduce your risk by diversifying the returns.
You may choose from a conservative investment option where a significant portion of investments are in cash and fixed investments, a balanced investment option where 60% to 80% is invested in growth assets such as shares and property or a growth investment option whereby 80% to 100% of assets are in growth assets such as shares and property.
Around 80% of all Australians have their money invested in a balanced fund. The general rule is the older you are the less risk you should consider taking.
Why Consolidate your Superannuation Funds
The average Australian has four different superannuation funds, each charging separate fees. Approximately $130 million in fees are paid every year on unclaimed superannuation funds. Consolidation of your funds has the major benefit of reducing fees paid and increasing the potential to maximise your final retirement amount. A single superannuation fund also means less paperwork, thereby making it easier to track your returns. (Please contact us for assistance in consolidating your super funds.)