Why is super so important?
You might think of super as just 9% of your salary that you can’t access. But it’s important to remember - it’s your money, it’s just being held for you until you retire. The main idea behind superannuation is to help you build a nest egg which you then use to create an income in retirement (or semi retirement). Including it as part of your financial plans can be important for a number of reasons:
- The Age Pension may not be enough for a comfortable retirement ($14,915 pa for a single person from 20 March 2009)
- You may spend over twenty years in retirement and your money will need to last
- Because super enjoys the benefits of compound interest and a long investment timeframe, it could be your largest asset by the time you retire
- The government is offering attractive tax incentives.
View our 'Importance of super' presentation to learn more about how you can make the most of your super today.
How tax-effective is super?
For most people, saving through super can be much more tax effective than saving the same amount outside super. Firstly, any contributions your employer makes (up to a certain limit) and any returns on your super are taxed at a maximum of 15%, rather than your marginal tax rate which could be as high as 45%. To see exactly how this works go to Super is a tax-effective investment strategy.
| What tax-effective incentives is the government offering? |
Salary sacrifice |
If arrange for contributions to be made to superannuation from pre-taxed earnings above the 9% contributed by your employer, you will pay a maximum 15% tax on the extra contributions rather than your marginal tax rate (up to a certain limit or cap). |
| Additional spouse contributions |
If your spouse earns less than $10,800 and you add to their super you could receive a tax rebate of up to $540. You can do this each year or when taking a lump sum. |
| Super splitting with your spouse |
If you even out the super contributions between yourself and your spouse you may save in tax when you convert your super into a pension. |
| Co-contributions |
If you earn less than $61,920 and make additional contributions to your super, the government could match your contribution (up to $1,000). |
| Access your super while still working |
If you’re over 55 and working part time you can now access your super in the form of a pre-retirement pension and still contribute to super. |
| Small business capital gains tax (CGT)consessions |
If you own a small business, the proceeds of the sale of certain assets may be contributed to super so you can minimise CGT as well as maximise your retirement savings. A lifetime $1.1 million limit applies to these amounts. |
| Roll your super over into an allocated pension when you retire |
If you use your super to buy an ‘allocated pension’ (also known as an ‘account based’ pension) rather than cash it in, you can save tax on the lump sum. Another benefit is that the returns on your allocated pension are not taxed. |
| Pension payments and withdrawals over 60 |
If you are 60 or over your pension payments and lump sum withdrawals are not subject to tax. |
Go to Super Strategies and Retiring to find out more about the strategies above.
Beware of the caps
There are caps on the amount of concessional (before tax) and non-concessional (after tax) contributions you can make each year. Please see Super terms explained for more information.
What to consider next
Speak to your financial adviser or choose an option here:
The information contained in this document is based on the understanding Colonial First State Investments Limited ABN 98 002 348 352 AFS Licence 232468 has of the relevant Australian laws as at 1 July 2009. This document is not advice and is intended to provide general information only. It does not take into account your individual needs, objectives or personal circumstances. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. Product Disclosure Statements (PDS) for products offered by Colonial First State are available from colonialfirststate.com.au or by contacting us on 13 13 36. You should read the relevant PDS and consider whether the product is right for you. Past performance and awards are no indication of future performance.
