We’ve spoken a lot about your super fund, and at Inovayt, we’re big believers in setting up your superannuation and planning for retirement as soon as possible. While most people are aware of what their superannuation does (in a general sense), many aren’t aware of the benefits of superannuation in general, including what it does.
Speaking to a financial advisor will help you get the most out of your superannuation and set you up for a comfortable retirement.
What is superannuation?
Put simply, superannuation or ‘super’ is money set aside by your employer throughout the course of your working life to live off when you retire. Your super is invested in a range of assets to help grow your balance and set you up for the best possible retirement. In 1992, the Australian government made superannuation a mandatory policy to encourage people to accumulate savings for retirement and rely less on the age pension.
The super guarantee requires employers to contribute a minimum percentage of an eligible employee’s earnings to a super fund, which acts as a retirement savings account that can’t be accessed until you reach the retirement age set by the government. The current superannuation guarantee rate is 10.5 per cent.
Why was superannuation introduced?
If you’re relatively new to the workforce, you won’t know a job without a superannuation fund. But back in the day, superannuation wasn’t compulsory. With an increasing life expectancy, the government became concerned that aged pension payments would be overwhelming to the country’s economy in the future if nothing were done.
Superannuation was the solution. This meant that every working Australian was forced to save money for their retirement – money that wasn’t accessible until workers retired or hit a certain age.
The policy aimed to address the challenge of retirement income in three ways:
- Mandatory employer contributions to super funds
- More contributions to super funds and other investments
- A means-tested, government-sponsored age pension.
The Australian government hoped that by putting these measures in place, every Australian would have a financially secure life in retirement.
What are the benefits of superannuation?
Apart from saving for retirement, superannuation comes with a host of other benefits. We’ve listed a few below, but our financial advisors can discuss these with you in depth.
Pay less income tax
We mentioned previously that your employer must contribute 10.5 per cent of your salary to your superannuation, but did you know this money comes from your salary before tax? One of the many benefits of superannuation is that your employer contributions are taken out before you’re taxed. You won’t even know that the money is gone!
Tax-effective capital growth
Superannuation is designed to help Australians become self-sufficient when they retire rather than relying on a pension. In most cases, the tax rate on money made through superannuation investments is lower than the same investments outside of the super fund. While profit from an investment outside of the fund could be taxed as high as 46.5 per cent, most super fund revenue is taxed between 10-15 per cent depending on the investment.
Tax-free income when you retire
Once you hit the retirement age (currently increasing from 65 to 67 years old), you can access your superannuation without paying taxes. This is typically available to you whether you withdraw money through a superannuation income stream or a lump sum, provided you’re with a taxed super fund.
Additional employer contributions
Employers only need to pay a minimum rate of 10.5 per cent into your superannuation. However, if you check with your employer, you may be able to request that they contribute a higher rate of your pre-tax pay to your super. Not every employee will have this option, but it doesn’t hurt to check with your employer as to whether they offer any additional superannuation benefits.
Salary sacrifice is an arrangement with your employer to forego part of your salary or wages in return for your employer providing benefits or a similar value. One example of a salary sacrifice arrangement is to have some of your wages paid into your super instead of directly to you. Another benefit of salary sacrificing is that these payments are classified as employer contributions, meaning you are generally taxed at a lower rate and don’t impact the voluntary contributions you can make.
One of the other benefits of superannuation is that it gives you the opportunity to invest in more considerable assets. Regardless of what type of super fund you’re with, you may have the chance to be a part of investments that aren’t publicly available. Superannuation is the chance for you to grow your retirement fund.
Why you should talk to an Inovayt superannuation financial advisor
When you get your first job, there are plenty of things you’d rather do with your money than talk to an expert. However, as soon as you start working is the best time to speak to a professional. The earlier you seek advice, the better chance you have of a comfortable retirement. Our team of experts can assist with the below considerations:
- How your super is invested
- The investment options available
- The fees you are paying
- How your super’s performance is tracking compared to alternative funds
- The various contribution limits and strategies you can take advantage of
- The protentional tax benefits available
- Whether you have any unclaimed super
- Deciding what happens to your super when you pass away
With constantly changing laws and legislation, Inovayt has a team of superannuation financial advisors specialising in all things super. Your super is crucial and shouldn’t be something you attempt to manage on your own or with the help of well-meaning family or friends. Talking to a qualified financial advisor can be the difference between a basic retirement and a comfortable retirement.
Whether you’ve just entered the workforce or been meaning to speak to someone for a while, get in touch with an expert today to solidify your future.