It has a superhero name for a good reason.
So what is superannuation?
Most of us view superannuation as a product, from a company such as AustralianSuper, Colonial First State or CBUS Super (to name a few). These are actually just superannuation accounts. Superannuation is quite simply compulsory savings that are held for you until retirement.
Why do we pay it?
Admittedly, it may seem like more money that doesn’t end up in our pocket each week. The main idea behind superannuation is to help you build a nest egg which you then use to create an income in retirement.
Why do we love it?
Superannuation is a tax structure. A very cheap tax structure at that. Allow us to explain.
Superannuation only pays tax at 15%. Capital gains tax is limited to 10% if the asset has been held for longer than 12 months. Now compare these tax rates with a person’s income tax rate which can be almost 50%. When you retire the tax rate for both income and capital gains is 0%. Obviously if you are going to invest for the long term, then it makes sense to the tax effective structure of super to do so.
What types of super funds are there?
There are several different types of superannuation funds. The mains ones are:
- Employer/corporate/staff funds – These are funds established by an employer for the benefit of their staff.
- Personal funds – As the name implies, it’s where you personally join as an individual through a super provider. There are many available and most will offer a wide range of investment choices and features.
- Industry funds – These were originally set up for people working in a particular industry, e.g. builders or health care workers. Many are now available to the public.
- Self-managed super funds (also called ‘do it yourself’ funds) – These can have up to 4 members and are generally used by people with larger amounts in super or by family groups.