Superannuation

What is superannuation?

Superannuation is money saved during your working life for you to live on when you retire. When you start working, your employer pays money towards your superannuation generally into an account of your choice.

Why do you need superannuation?

For many people, superannuation is their main form of income when they retire. That’s why it’s important to have superannuation savings and to add to it when you can so that you’ll have enough money to live on when you retire.

Superannuation has become increasingly important over the years as successive federal governments realise that the age pension cannot provide adequate retirement income for all Australians.  Superannuation is the foundation of financial security.  Not just the security of having enough to live on in retirement, but the peace of mind that comes from having adequate resources to meet any unforeseeable circumstance in life, including time out of the workforce, sickness, permanent disability and death of a family member.

Actively managing your superannuation

Whether your superannuation is a self-managed fund or an industry fund, it is still your money and needs to be managed.  Too often, busy professionals don’t prioritise the review of their super’s performance and the actions needed to ensure their funds perform, leaving it to turn over, year-in, year-out.

Since the global financial crisis (GFC), superannuation funds have been hit hard.  Many people have had to postpone or change their retirement plans as their superannuation provisions are no longer sufficient to meet their retirement income goals.  Some have even been forced to sell their investments prematurely in order to meet unexpected expenses.  For some people, the GFC has awoken them to the importance of actively managing their superannuation savings.

Boosting your superannuation smartly

The concessional tax treatment of superannuation makes it an attractive investment to build your financial security. Strategies can include splitting superannuation with your spouse and maximising the government co-contribution.

Each individual’s circumstances are different, with tax considerations, long-term financial goals and risk profiles to be considered. A financial planner can help you understand complicated concepts such as contribution caps and salary sacrifice arrangements.

Life Insurance and Superannuation

Superannuation can be a tax effective means for providing death and disability insurance, within certain limits.  Premiums for personal insurance cover via a non-super policy are generally paid with after-tax dollars. On the other hand, premiums paid through a super fund can effectively be funded from concessionally taxed super contributions. In addition, tax concessions can apply to super benefits paid as a result of death, terminal illness or total and permanent disability. For instance, if you have taken a life cover via your super fund, the proceeds from your life cover can be paid out completely tax free to your tax dependants like your spouse and dependent children.

Insurance premiums paid through super are generally lower than similar cover outside of super as funds use their buying power to negotiate group or wholesale rates.

Finally as premiums are automatically deducted from your super balance, it can be a great way to help you manage your cash flow especially in times of employment uncertainty, while at the same time ensuring that the financial security of your family is not jeopardised.

As with all insurances, it is important to know whether your amount of cover is adequate, the exclusions applied by various insurers, and the potential delays during claim times.  It is our job to assist you in addressing all your insurance concerns and to structure the most appropriate vehicle for your various covers.

Choosing a self managed super fund

In a volatile market, people often set up a self-managed super fund (SMSF) thinking that they can do a better job on their own.  Whilst a SMSF can be cost effective and give more flexibility and control over tax outcomes and investment choices it is important to take an overall view when deciding whether a SMSF is better for you.  Despite these advantages, the decision to commence a SMSF as your preferred superannuation fund should not be undertaken lightly.

Consideration should be given to your level of interest in your portfolio, your risk profile, your financial goals and level of available assets.  It is important to be aware of and understand the potential disadvantages including the risk of non-compliance under the SIS legislation, the costs of running a SMSF and the time requirements for the ongoing management of the fund. Although the individual has a degree of control over the level of involvement, the minimum level of involvement required is greater when compared with having funds invested in a public offer superannuation fund.

Given the potential costs and risks associated with running a SMSF, this type of vehicle is only appropriate for large super balances.

What assets can I invest in superannuation?

Generally, Managed Investment Funds or Direct shares can be invested in superannuation and you can also invest physical assets such as property and art, but this depends on the type of super fund you own.

Basic super funds, such as most industry funds, allow a restricted number of investment choices such as “Balanced”.  However, it is not always clear what your money is invested in.

Wrap Accounts are an administration service that bundles a portfolio of investments together.  This structure allows you the flexibility of investing in term deposits, direct shares (sometimes international shares) and hundreds of professionally managed funds.

Self Managed Super Funds, mentioned above, have the most flexibility allowing investment in almost any managed fund, direct share or financial investment but also physical assets such as property, art and collectables to be invested assets.  It is important to note there are strict laws governing the way SMSF’s are set up and monitored however they present great opportunities for clients wanting more flexibility with their superannuation investments.

Financial planning for superannuation

Read real life client case studies of how superannuation plays a part in:

StrategyOne Advice Network is an authorised representative of Fitzpatricks Prviate Wealth Pty Ltd, AFSL No. 247429, ABN 33 093 667 595 (“Fitzpatricks”).

This information is of general nature only and is not intended as a personal advice. It does not take into account your particular investment objectives, financial situation and needs. Before making a financial decision you should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. We recommend you consult a professional financial planner who will assist you.