Why is Super so Important?

16 Nov 2012

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 ($18,618.60 pa for a single person from 20 September 2010)
  • 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.

 

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.

 

 

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.