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Some comments about Australian Superannuation from Noel Whittackers monthly newsletter.
Now what are we missing by not having compulsory superannuation in NZ?
Recent changes such as the abolition of both the work test and the surcharge, the ability to access part of your superannuation at age 55 and keep working, and the introduction of term allocated pensions means superannuation is going to play an increasing role in retirement planning. Getting it wrong can be very costly
ONE - Understand that money placed in superannuation is inaccessible until you retire from the work place after age 55, and up to 60 if you were born after June 1964.
Therefore, don't place money in this area unless you are prepared not to touch it.
TWO - The removal of the surcharge means that tax-deductible
contributions lose no more than 15% in contributions tax on entry into the fund. This is why you should always make your contributions by salary sacrifice if you can. The majority of employees lose at least 31.5% of money that goes into their pay packet-monies salary sacrificed to superannuation lose only 15%. Undeducted contributions have no entry
or exit tax. If you are in surcharge territory you should try to delay making superannuation contributions until after June 30th but of course you’ll need to take expert advice. It is a choice of paying 48.5% tax on a bonus now or salary sacrificing it to super and losing 27.5% (including surcharge), its obviously better to adopt the second strategy.
THREE - Don't be too conservative when selecting an investment mix. If you are more than 15 years away from retirement always select a high growth option. This should give the highest returns over time. Also bear in mind that you may live for at least 30 years after you stop work so don't make the mistake of converting all your super fund assets into cash as you near retirement.
FOUR - Industry funds have been in the headlines and you may have read that some of their advertising has been banned by ASIC. There are many factors to consider when choosing a fund and it is critically important to make sure the superannuation fund you select has a back office that will enable it to offer the services you need. For example, not all funds allow members to make binding nominations or to split their deductible contributions with their spouse. Also, there are some that are hopeless at handling contributions for the purpose of gaining the government co-contribution.
FIVE - Where possible, pay your life insurance out of your super fund. Often, super funds can obtain insurance at wholesale rates, which enables you to save on insurance premiums, and many of the big funds will let you have a sizable amount of insurance without a medical. Best of all, if you can make your contributions by salary sacrifice, you are effectively getting a tax deduction for your super because its being paid in pre-tax dollars. Life insurance has a cost, and the fact that the premiums are being paid from your superannuation means that less money is now working for you. Certainly, you should have adequate insurance but don't over insure or take out insurance that is not necessary. The question to ask yourself is "how would my family cope if I was killed tomorrow"?
SIX - Don't let yourself be pushed into starting your own self-managed fund. Yes, they are appropriate for people with large balances who are successful share investors but for most people they are unnecessary, costly and time consuming. The tax office and APRA (Australian Prudential Regulation Authority) are targeting self-managed funds because they are concerned that a large number of trustees simply don't have the skills needed to run a superannuation fund. There are also extremely high
penalties for non-compliance and the price of getting it wrong could mean that your fund loses its tax concessions. The trustees may be hit with heavy fines too.
SEVEN - Every super fund charges ongoing fees but it is dangerous to judge a fund on the fees alone. The facilities offered by the fund should be the major consideration. Also avoid unnecessary fees by amalgamating wherever possible all your superannuation under one fund. If you believe that super from previous jobs is unaccounted for go to http://www.unclaimedsuper.com.au/ and see if you can track it down. Recently a family friend told me he was staggered to discover $35,000 worth of super in his name that he had forgotten about.
Finally treat superannuation as your friend and make the effort to understand it. If you’re not using it to its full extent, you are paying too much tax.
Regards
Some comments about Australian Superannuation from Noel Whittackers monthly newsletter.
Now what are we missing by not having compulsory superannuation in NZ?
Recent changes such as the abolition of both the work test and the surcharge, the ability to access part of your superannuation at age 55 and keep working, and the introduction of term allocated pensions means superannuation is going to play an increasing role in retirement planning. Getting it wrong can be very costly
ONE - Understand that money placed in superannuation is inaccessible until you retire from the work place after age 55, and up to 60 if you were born after June 1964.
Therefore, don't place money in this area unless you are prepared not to touch it.
TWO - The removal of the surcharge means that tax-deductible
contributions lose no more than 15% in contributions tax on entry into the fund. This is why you should always make your contributions by salary sacrifice if you can. The majority of employees lose at least 31.5% of money that goes into their pay packet-monies salary sacrificed to superannuation lose only 15%. Undeducted contributions have no entry
or exit tax. If you are in surcharge territory you should try to delay making superannuation contributions until after June 30th but of course you’ll need to take expert advice. It is a choice of paying 48.5% tax on a bonus now or salary sacrificing it to super and losing 27.5% (including surcharge), its obviously better to adopt the second strategy.
THREE - Don't be too conservative when selecting an investment mix. If you are more than 15 years away from retirement always select a high growth option. This should give the highest returns over time. Also bear in mind that you may live for at least 30 years after you stop work so don't make the mistake of converting all your super fund assets into cash as you near retirement.
FOUR - Industry funds have been in the headlines and you may have read that some of their advertising has been banned by ASIC. There are many factors to consider when choosing a fund and it is critically important to make sure the superannuation fund you select has a back office that will enable it to offer the services you need. For example, not all funds allow members to make binding nominations or to split their deductible contributions with their spouse. Also, there are some that are hopeless at handling contributions for the purpose of gaining the government co-contribution.
FIVE - Where possible, pay your life insurance out of your super fund. Often, super funds can obtain insurance at wholesale rates, which enables you to save on insurance premiums, and many of the big funds will let you have a sizable amount of insurance without a medical. Best of all, if you can make your contributions by salary sacrifice, you are effectively getting a tax deduction for your super because its being paid in pre-tax dollars. Life insurance has a cost, and the fact that the premiums are being paid from your superannuation means that less money is now working for you. Certainly, you should have adequate insurance but don't over insure or take out insurance that is not necessary. The question to ask yourself is "how would my family cope if I was killed tomorrow"?
SIX - Don't let yourself be pushed into starting your own self-managed fund. Yes, they are appropriate for people with large balances who are successful share investors but for most people they are unnecessary, costly and time consuming. The tax office and APRA (Australian Prudential Regulation Authority) are targeting self-managed funds because they are concerned that a large number of trustees simply don't have the skills needed to run a superannuation fund. There are also extremely high
penalties for non-compliance and the price of getting it wrong could mean that your fund loses its tax concessions. The trustees may be hit with heavy fines too.
SEVEN - Every super fund charges ongoing fees but it is dangerous to judge a fund on the fees alone. The facilities offered by the fund should be the major consideration. Also avoid unnecessary fees by amalgamating wherever possible all your superannuation under one fund. If you believe that super from previous jobs is unaccounted for go to http://www.unclaimedsuper.com.au/ and see if you can track it down. Recently a family friend told me he was staggered to discover $35,000 worth of super in his name that he had forgotten about.
Finally treat superannuation as your friend and make the effort to understand it. If you’re not using it to its full extent, you are paying too much tax.
Regards
.
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