Superannuation is your retirement fund – the pool of money you’ll use to live on after you’ve hung up your employment boots.
How it works
Currently, by law your employer must pay a minimum of 9.5% of your ordinary time earnings (that is, not including overtime) on top of your wage into a super fund of your choice every three months. This will build up over the years, and when you retire, it is paid to you as either a lump sum, an income stream (like a pension) or a combination of both.
What is a super fund?
There is a confusing array of super funds to choose from, but most fall under the category of a managed fund. This is where your money is pooled with other people’s and invested by a fund manager. However, unlike a normal managed fund, with a super fund you cannot access your money (except for extreme circumstances) until you permanently retire or else reach your morbidly-named ‘preservation age’ – currently 60 for people born after 1964.
Most superannuation companies offer a number of types of funds to choose from (e.g. those that invest mainly in shares or in a mixture of asset classes, such as shares and fixed interest). It’s important to make sure you’re in the right type of fund based on your circumstances as the different returns made by different funds could have a big impact on the amount you end up with at retirement time.
Super and tax
Superannuation is considered to be the golden child of tax-effective investment. Unlike most other forms of investment (such as shares, managed funds or property) any profits you make will be tax free if you’re paid out after you turn 60 and invest in a ‘taxed super fund.’ Also, any extra money that you salary sacrifice (i.e. take-home pay that you forgo to contribute to your super) is contributed before tax which means that you won’t pay tax on it at your marginal rate – instead, you’ll pay only 15% tax (which is a tax that applies to all superannuation contributions).
The Australian Securities and Investments Commission’s consumer website MoneySmart, has a comprehensive section on superannuation.
The Australian Taxation Office’s website has a comprehensive section on superannuation that will answer common questions about superannuation for individuals.
Run a search on your fund to make sure it is a complying super fund that meets legal standards.
Find a financial adviser
Check out the Australian Securities and Investments Commission’s website MoneySmart – it has loads of great information about obtaining personal financial advice and finding a qualified financial adviser. Experts often suggest you find an adviser who charges by the hour instead of receiving a commission.
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