Superannuation is a tax-effective compulsory scheme that helps Australian workers save for retirement. Your employer must contribute a percentage of your salary (currently 9.5%) to superannuation if you earn more than $450 in a month and are over 18 years old.
Super could save you tax
Superannuation is one of the most tax‑effective ways to save for retirement. Even so, taxation laws are complex and subject to change so you might like to consult a financial adviser or tax adviser for specific details about how you will be taxed.
Generally, there is a 15% contribution tax applied to amounts your employer contributes for you, and amounts you elect to sacrifice to superannuation from your salary. If you make personal contributions after paying income tax, no contribution tax is applied. The investment earnings made within superannuation are also taxed at a maximum rate of 15%. This makes saving in super attractive when compared with other investments, which can be taxed at higher rates while they grow.
What kind of benefit will you get from a superannuation fund?
Superannuation generally provides a lump sum benefit on retirement or transferred into a pension account, which provides a regular income. It is also possible to take a combination of lump sum and a pension. The income from a pension account is not guaranteed for life or restricted to a set amount.
You choose how much to withdraw each year subject to a minimum withdrawal, and choose how the account is invested. Depending on how much you draw out and what returns the investments make will determine how long the money will last in retirement.
How is the final benefit determined?
Generally, you choose how your superannuation account is invested and how much you would like to contribute
to it in addition to your employer’s contribution. The final benefit is determined by how your investment has performed over the years, and how much has been contributed (by your employer and you), just like an investment in the share market or a managed fund.
Obviously, we are all different with our own specific needs and goals so it may be wise to seek professional advice relevant to your circumstances to see how super can work for you. Get in touch with us to help you navigate through the super maze.