As a professional in the finance industry I am often confused, and at times distressed, when I hear someone remark that they don’t like superannuation. What? You don’t like superannuation? How can that be?
My usual response is that superannuation system in Australia is awesome and to delve further.
Why don’t you like superannuation, I ask? The answer is always predictable, to the person. Our superannuation has “gone down”, it is now worth half of what it was 5 years ago, I don’t understand it, and it is rubbish!
Well I am sorry to say, to all of you that think that superannuation is rubbish because of those reasons, you are wrong. Superannuation is not the problem. The problem lies in the following areas
- The investment decisions made by you or the investment managers you pay to manage your superannuation investments
- Lack of knowledge and education about superannuation as a structure
- Lack of planning and accountability for how your superannuation investments are managed in line with your stage of life and personal needs
- A general unwillingness of the individual to take responsibility for their own investments
- A lack of transparency in relation to the management of funds
So let me explain my claim that superannuation in Australia is awesome. Superannuation is, in the most simple of terms, a structure in which you accumulate savings for retirement. Similar to many other structures it proves a means to accumulate assets, generate income, pay expenses and to pay taxes. That is all it is, a structure.
The reason I believe it is so good is that the superannuation structure provides benefits that no other structure can. Superannuation funds are taxed at a rate no higher than 15% on contributions (unless your personal taxable income is greater than $300,000 per annum), earnings are taxed at no higher than 15% and capital gains on assets held longer than 12 months no higher than 10%. Compare this to other structures or individual tax rates which can be as high as 46.5%. What’s more, when you retire, the tax on earnings and capital gains in reduced to zero. Even better, once you reach 60 years of age, any income that the superannuation structure pays you as a member is tax free too! And these are just the obvious benefits. Don’t get me started on how effective the structure can be if you own a small business.
Still think superannuation is a dud?
The good news is that many of you are now taking charge of your retirement savings. This includes a huge number of Australians that are establishing Self-Managed Superannuation Funds (SMSF’s) to control their own retirement plan. A SMSF is exactly as it seems. It is a superannuation structure in which you, as the member and controller of the fund, make the decisions on how to invest your retirement savings. It is a structure that gives the control back to you. It is a structure that provides transparency in operation and forces the individual to become educated on what superannuation is and how it can benefit you in the future.
SMSF’s are now so popular that their numbers are growing at record rates with over 1/3rd of all retirement savings in Australia now held inside the self-managed market.
But beware. With great power comes great responsibility. The penalties for doing the wrong thing are significant. A SMSF is not right for everyone!
Contact us if you would like more information on how to take control of your retirement.