That old saying about death and taxes should have superannuation added to it. In Australia at least, you just cannot get away from it.
Nevertheless, when you are about 60, you will not want to. Superannuation is literally a lifetime of cash savings put away for you during your working life by your employer for when you decide to throw in the working world and gaze at your retiring navel.
It is also a massive industry. At present in Australia, there is something like $700 billion in accumulated super funds. Who said Australia could not save?
The are "three pillars" approach to retirement income:
- A safety net consisting of a means-tested Government age pension system
- Private savings generated through compulsory contributions to superannuation
- Voluntary savings through superannuation and other investments
Since its introduction, employers have been required to make compulsory contributions to superannuation on behalf of most of their employees. This contribution was originally set at 3% of the employees' income, and has been incrementally increased by the Australian government. Since 1 July 2002, the minimum contribution has been set at 9% of an employee's ordinary time earnings. The 9% is thus not payable on overtime rates but is payable on remuneration items such as bonuses, commissions, shift loading and casual loadings.">http://en.wikipedia.org/wiki/Australian_federal_government">Australian government. Since 1 July 2002, the minimum contribution has been set at 9% of an employee's ordinary time earnings. The 9% is thus not payable on overtime rates but is payable on remuneration items such as bonuses, commissions, shift loading and casual loadings.
Though there is general widespread support for compulsory superannuation today, it was met with strong resistance by small business groups at the time of its introduction who were fearful of the burden associated with its implementation and its ongoing costs.
The Howard government has been criticised for its reluctance to increase the compulsory rate of superannuation. Had the compulsory rate been 15% since 1996, rather than the current 9%, total superannuation assets in Australia would be approaching $2 trillion - almost double the current level. ">http://en.wikipedia.org/wiki/John_Howard">Howard government has been criticised for its reluctance to increase the compulsory rate of superannuation. Had the compulsory rate been 15% since 1996, rather than the current 9%, total superannuation assets in Australia would be approaching $2 trillion - almost double the current level.
After over a decade of compulsory contributions, Australian workers have over $913 billion in superannuation assets. Australians now have more money invested in managed funds per capita than any other economy.">http://en.wikipedia.org/wiki/Superannuation_in_Australia#_note-2#_note-2"> in superannuation assets. Australians now have more money invested in managed funds per capita than any other economy.
Compulsory superannuation in combination with buoyant economic growth has turned Australia into a 'shareholder society', where most workers are now indirect investors in the stock market. Consequently, a lively personal investment marketplace has developed, and many Australians take an interest in investment topics.">http://en.wikipedia.org/wiki/Economic_growth">economic growth has turned Australia into a 'shareholder society', where most workers are now indirect investors in the stock market. Consequently, a lively personal investment marketplace has developed, and many Australians take an interest in investment topics.
How it works:
Employers must make superannuation contributions to the employees' designated superannuation fund at least every three months. The superannuation contributions are invested over the period of the employees' working life and the sum of compulsory and voluntary contributions, plus earnings, less taxes and fees is paid to the person when they choose to retire. The sum most people receive is predominantly made up of compulsory employer contributions.
Special rules apply in relation to employers providing defined benefit arrangements. There are less common traditional employer funds where benefits are determined by a formula usually based on final average salary and length of service. Essentially, instead of minimum contributions, employers need to provide a minimum level of benefit.
Superannuation Guarantee law applies to all working Australians, except those earning less than $450 per month, or aged under 18 or over 70. Individuals can choose to make extra voluntary contributions to their superannuation and receive tax benefits for doing so.
Access to superannuation
As superannuation is money invested for one's retirement, strict government rules prevent early access to preserved benefits except in very limited and restricted circumstances, including severe financial hardship or on compassionate grounds, such as for medical treatment not available through Medicare.">http://en.wikipedia.org/wiki/Medicare_%28Australia%29">Medicare.
Generally, superannuation benefits fall into three categories:
· preserved benefits;
· restricted non-preserved benefits; and
· unrestricted non-preserved benefits.
Eligibility for access to preserved benefits depends on a worker's preservation age. The Howard government announced changes in 1997 to the superannuation system designed to induce Australians to stay in the workforce for a longer period of time, delaying the effect of population ageing. Previously, any Australian could access their preserved benefits once they reached 55 years of age. However, after legislation was passed in 1999, an employee's preservation age depends on their date of birth.">http://en.wikipedia.org/wiki/John_Howard">Howard government announced changes in 1997 to the superannuation system designed to induce Australians to stay in the workforce for a longer period of time, delaying the effect of population ageing. Previously, any Australian could access their preserved benefits once they reached 55 years of age. However, after legislation was passed in 1999, an employee's preservation age depends on their date of birth.
Hence, by 2025, all Australian workers wishing to access their superannuation would be at least 60 years old.">http://en.wikipedia.org/wiki/2025">2025, all Australian workers wishing to access their superannuation would be at least 60 years old.
Reasonable benefit limits
- Superannuation earnings are taxed at 15%, high income earners may incur superannuation surcharge*
- Employees can reduce their taxable income through salary sacrifice. By contributing pre-tax salary into superannuation, your effective tax rate on the contributed funds is 15% (before superannuation surcharge*, if applicable) rather than your marginal personal tax rate.
- Realized Capital Gains are taxed at a reduced rate of 15% (before superannuation surcharge*, if applicable) and discounted by one third if held for more than one year.
- Superannuation members and individuals are able to contribute on behalf of a non-working spouse up to age 65; if aged 65-69, the spouse must be gainfully employed before a contribution can be made. The contributing spouse may be eligible for an income tax rebate of up to 18%.
- Self-employed individuals can claim a tax deduction for contributions made to superannuation up to certain age based limits.
- Individuals can also make deductible contributions to their fund. Here the personal contribution is taxed upon entry to your super fund and the contribution amount is tax deductible within age-based limits (at your marginal tax rate).
- If you are eligible and make a personal contribution to super, the Government will match your contribution with a Superannuation co-contribution up to certain limits.
Not only is contributing tax-effective, drawing an income from your super can be tax effective too! Many pensions drawn from superannuation funds are entitled to a tax rebate of up to 15% per annum.
For most Australians, superannuation has become an important issue in our working lives.
Over the past 10 years, employers have been required to contribute to superannuation on your behalf and as of July 2002, this amounts to 9% of your annual salary.
Although this may seem like a lot, many financial planners believe it will still not be enough to allow you to live comfortably in retirement.
Boosting your super savings is probably one of the most important steps you will take in planning your retirement.
There are a range of strategies that you can assist you in maximizing and growing your superannuation, including:
There are six main types of superannuation funds:
· Industry Funds are multiemployer funds run by employer associations and unions.
· Wholesale Master Trusts are multiemployer funds run by financial institutions for groups of employees. These are also classified as Retail funds by APRA.
· Retail Master Trusts/Wrap platforms are funds run by financial institutions for individuals.
· Employer Stand-alone Funds are funds established by employers for their employees. Each fund has its own trust structure that is not necessarily not shared by other employers.
· Do-It-Yourself Funds (or Self Managed Superannuation Funds) are funds established for a small number of individuals (usually fewer than 5).
· Public Sector Employees Funds are funds established by governments for their employees.
The vast majority of the funds are self-managed funds. Retail and Wholesale Master Trusts are the largest sector of the Australian Superannuation Market
Choice of superannuation funds
From 1 July 2005, changes to the law mean that many Australian employees will be able to choose which fund their employer's future superannuation guarantee contributions are paid into. Choice of superannuation funds allows workers to:
· change funds when their current fund is not available with a new employer;
· consolidate superannuation accounts to cut costs and paperwork;
· change to a lower-fee and/or better service superannuation fund;
· change to a better performing superannuation fund.
The New Rules
· All super benefits will be tax-free from July 1, 2007, for people over the age of 60.
· Reasonable benefit limit rules, which impose tax penalties if you save too much in super, will be scrapped from July 1.
Undeducted, or personal, after-tax super contributions will be capped at $150,000 a year from July 1. As a transitional measure, $1 million can be contributed before July next year. Deductible contributions will be limited to $50,000 from July 1. Better incentives for the self-employed.
Benefits of Industry Funds
Twenty years ago, unions won super as a right for all Australian workers and set up industry super funds to look after the retirement savings of their members. Since then, industry super funds have gone from strength to strength whilst retaining their philosophy to maximize the superannuation of members. Superannuation and industry super funds are an achievement that unions are rightly proud.
In 1985, only 39% of the workforce had super – now 97% of workers have super. For many people super is now the second biggest asset after the family home.
There are now well over 5 million members in “all profits to members” industry super funds, which unions jointly created with employers, managing over $120 billion of worker’s super.
Key features of industry funds:
- Industry funds are run only to profit members, not shareholders.
- Unions to give all workers the right to super established industry funds.
- Industry funds have equal numbers of member or union elected representatives and employer representatives on trustee boards.
- Industry funds have lower average fees than retail funds and do not pay commissions to financial planners and accountants.
- Industry funds have a history of strong long-term investment performance.
- Industry funds focus on innovative investment options.
Superannuation generally offers significant tax benefits. Superannuation fund, benefits should assist you in accumulating funds faster, providing a higher level of income at retirement.
Super funds now typically have a record of accomplishment of 15-20 years of very strong performance. Few, if any, of their competitors can match that.