superannuation advice
what is superannuation?
Superannuation, or ‘super’, is a way to save money for your future. It is important to understand how much super you’ll need, and how to best manage the money for your retirement. Through super, you can hold a wide range of investments such as shares, property and cash.
Superannuation is attractive because it receives favourable tax treatment, both when you are working and once you have retired. The government offers these tax savings to encourage you to build your super assets. Employers must pay superannuation contributions on behalf of their employees. You can also choose to add money into superannuation out of your own pocket. If you are self-employed, you can choose whether to contribute to superannuation.
The tax benefits of superannuation include:
- Contributions made to super may attract a tax deduction or tax offset.
- Investment earnings are taxed at a maximum of 15 per cent, rather than your marginal tax rate of up to 46.5 per cent.
- Capital gains are taxed at a maximum rate of 15 per cent.
- Your super benefit can be paid as a tax-free pension or lump sum when you reach 60 and satisfy the criteria to access your funds.
The amount of money you will need in retirement varies from person to person, and depends on:
- the kind of lifestyle you want other income options in retirement (such as part-time work or payments from other investments) that will supplement your super, and the age at which you would like to retire.
If you were to contribute just $25 a week into your super (after tax) for the next 30 years, your super account could end up $62,000* better off at retirement than someone who relies solely on their employer's minimum contributions. That's more than enough to cover a year's worth of retirement.
If you are an employee, your employer must pay superannuation contributions on your behalf. These contributions are called ‘superannuation guarantee’, and are compulsory for most employees. If you are eligible for superannuation guarantee, your employer’s compulsory contributions must be equivalent to at least 9 per cent of your gross salary.
For example, if you earn $40,000 a year, your employer must put at least $3,600 a year – or $900 per quarter – into your superannuation account. Some employers may contribute more to your superannuation, depending on the terms of your employment. If you are self-employed, you do not receive superannuation guarantee contributions but you may be eligible to claim a tax deduction for personal contributions.
You can add your own money to your employer’s contributions to increase your superannuation savings through ‘salary sacrifice’. The contribution is made by your employer who pays part of your salary to your superannuation fund, instead of paying it to you. You tell your employer how much you want to sacrifice and choose to take less salary.
The amount you elect to sacrifice to superannuation comes off your gross salary, and may result in a tax saving. This tax saving comes about because, for most people, the tax saved on the forgone salary exceeds the tax that is paid when the equivalent amount is contributed to superannuation. You can also choose to make personal contributions to your super from your after-tax income. It is also possible to contribute to your spouse or partner’s superannuation. This type of contribution may entitle you to a tax offset, depending on how much your spouse earns.