Superannuation:

What is Superannuation ?
‘Superannuation’ is the environment in which the government has legislated that you must save to help fund your own retirement. It is mainly governed by the Superannuation Industry (Supervision) or "SIS" legislation. It is not a type of investment. Money that is ‘in the super fund’ is invested in exactly the same way as normal money; such as in shares, term deposits with the bank or even in property.

Think of it as having two cupboards next to each other in the kitchen; both have dishes in them, but one, the ‘Superannuation Cupboard’, is locked and you are not allowed to open it and use the dishes in it until you reach a certain age; whereas you can use the dishes in the other cupboard whenever you want. But the dishes are the same.

Under Australian law, employers have to put money into superannuation for their employees. It’s called the Superannuation Guarantee Contribution (SGC) and is equal to 9% of the employee’s salary & wages, however some employers pay more then 9%. So the SGC money that your employer is paying for you has to be invested in an environment where you can’t touch it until you reach what is called your ‘preservation age’. Preservation ages range between 55 and 60 years old, depending on your date of birth.

The SGC money is paid into a Superannuation Fund (like the locked cupboard). You can also contribute money into the superannuation fund, and there may be tax advantages for you to do this, because there are special tax treatments for superannuation.

 

What is a Superannuation Fund ?

A superannuation fund is a trust fund comprising of a sum of money (or pool of assets) set aside primarily for the purpose of providing retirement benefits.

There are certain legal requirements to ensure that this purpose (providing retirement benefits) is maintained.

The superannuation fund will have:

(a) trustees (could be you) - who hold and control the fund assets for
(b) the beneficiaries (or members) who are ultimately entitled to the fund's assets.

As we said above, in most other respects, the investments in a superannuation fund are like any other investment that you, as an individual (or as part of a group), can participate in. In fact you may well be familiar already with the types of investments that make up many super funds. That also means that they can be subject to the market movements that money outside of superannuation are subject to. Some of these include:

Self Managed Super Funds
Some Superannuation Rules

Have you recently heard someone say, “I was going to retire but I’ll have to work another 5 years now because I don’t have enough super anymore”. They are referring to the fact that their superannuation balance has gone down because of market movements. The exception to this is a Defined Benefit Account, but these are less common.

Will my Superannuation be enough ?

Probably not. If an employee who earns $50,000 per annum has 9% SGC contributed by their employer into superannuation for them, then after retirement the employee will only have enough money to live on for 2 years at $50,000 per year. If that employee then goes onto the age pension they will have to live on just over one third of that amount.

Calculations based on an Income of $50,000 per annum for 35 working years with CPI at 3.5%, Growth & Dividend rate at 8.0% in an accumulation account.

 

How can we help ?
We provide a free financial assessment to see how long your superannuation will last when you retire. You will probably be surprised.  We can also show you some options about what to do if you are not happy with how long your superannuation will last.

 

What’s the most important thing ?
In your office today, 8 out of every 10 people will not have enough money to retire on. How do you know if you are one of the 8, or one of the 2? Don’t leave it too late to find out. Call us today.

To directly ask John Hehir a question click here

Prepared by John Hehir Financial Advisers Australia