What is Superannuation?

Superannuation is a tax effective investment structure through which a fund member's savings are consolidated along with investment earnings in order to provide a financial benefit for people's retirement.

Superannuation is not an investment in its own right but rather a tax effective structure through which investments are held.

This money is preserved for its members until a "condition of release" is met (usually retiring after age 55 or reaching age 65) which Holt Partners can explain to you in detail.

Money is contributed into a superannuation fund either by the member or their employer which is invested in several key areas. This fund provides a tax minimisation structure for holding multiple different investments which we would otherwise have in our own name. This money continues to grow over a number of years with the aim being to provide the fund member an income or a lump sum figure upon their retirement.

This money is taxed at a much reduced rate to encourage people to provide for their retirement.

This benefit will be passed on to a fund member's dependants in the event of their death, depending on binding or non-binding nominations that are made. Superannuation funds may also provide an additional level of benefits in the event of temporary or permanent disablement or when diagnosed with a terminal illness.

Most superannuation funds will allow their members a choice of how their money is invested. This is a highly complex issue which Holt Partners can accurately advice you about.

Superannuation funds charge their members fees to administer the member's account. Fees and charges can vary considerably; the funds with the cheapest fees are not always the best funds.

Types of Funds

1. Industry super fund: These were originally established by specialist fund managers charging lower fees to cater for the employees of specific industries such as trades, hospitality, retail and health. In recent times most of these specialist funds are now open to people from a wide variety of different occupational groups.
2. Public sector super fund: These are primarily for State and Federal government public servants.
3. Corporate super fund: Many larger companies provide their own super fund for their employees. In recent times we are seeing this trend steadily declining.
4. Retail super fund: These are open to anyone, employees and employers alike and are open to all occupational groups. They are one of the largest types of funds available and are run by financial institutions such as a bank or a fund manager.
5. Self- managed super fund: These have usually less than five members such as individuals or family groups who wish to take a more specialised approach to their super fund. They tend to be favoured by high to very high income earners who have a sound knowledge of the investment market. Wrong decisions here can be disastrous for your retirement future.

Superannuation funds are a form of trust structure; operating under strict rules determined by government legislation which is detailed in the Superannuation Supervision Act and Regulations.

Each Superannuation fund has one or more appointed "trustees" who are responsible for ensuring that the fund is operated within the law.

People who belong to a fund are referred to as "members". The only other people who may have an interest in a member's fund are the member's dependants when the member dies. These may include spouse, children or others determined by the legislation.

Phases of Super

Superannuation funds go through two phases; an accumulation phase and a pension or income phase.

The accumulation phase is when investment earnings and contributions from your employer, self or government accumulate for your retirement. No benefits are being paid out.

The pension phase is when a super fund is paying a pension or regular income. It is possible for the fund to still be accumulating whilst pension payments are being made.

Concessional Contributions

Concessional contributions are made by employers on behalf of their employees and by self-employed (or substantially self-employed) individuals who are claiming their contributions as a tax deduction.

These concessional superannuation contributions are limited up to $25,000 per person, per year. They are taxed at a rate of 15 percent which is paid for by the super fund. People aged 50 and over are allowed to contribute up to $50,000 per person per year. Contributions that exceed these capped figures may be taxed up to 45 percent (plus Medicare levy). These figures apply up until 30th June 2012.

Persons aged between 65-74 who wish to continue their contributions must undergo a "work test" assessment.

Non-concessional contributions

These are personal contributions that are NOT eligible for a tax deduction and are referred to as non concessional contributions.

There is a limit of $150,000 per person, per year for the 2008/2009 financial year. This can be increased to a total of $450,000 when these non concessional contributions are brought forward by 2 years by persons under the age of 65.

Persons aged between 65-74 who wish to continue with their contributions must meet a "work test" assessment.

Persons aged 75 and over are not able to continue making contributions. However if someone who is in this age bracket is employed; their employer is required to make their mandatory contribution.

Salary Sacrificed Contributions

Salary sacrificed contributions are a very effective tax minimisation strategy where an employer negotiates for their employer to allocate a certain amount of their income to be paid into a superannuation fund. This is then taxed at a lesser rate of 15 percent as opposed a marginal rate of up to 45 percent.

There are several important points to consider before you commence with this strategy. Holt Partners can provide you with sound financial advice to determine what is best for you.

Government Contributions

The Federal Government will make a maximum superannuation co-contribution of $1,000 to low income earners. This is in an attempt to encourage them to make non-concessional super contributions. The government will contribute $1 for every 50c that is paid by the individual provided that a number of conditions have been met to qualify for this incentive.

Superannuation Guarantee

From the 1ST JULY 1992 the Federal Government introduced legislation mandating employers to pay their employees 9 percent of their base wages into a superannuation fund to lessen the dependence on the aged pension.

There are very few exceptions to this ruling; Holt Partners can explain this in further detail.

Most industry sources feel that 9 percent is about HALF of what is really needed to provide a reasonable level of income upon retirement.

Member Choice

In most instances employees have the choice of which superannuation fund their employer's compulsory contribution is paid into.

There are several thousand funds available; some are very good and some are very poor. Holt Partners would strongly encourage professional advice when choosing a superannuation fund to ensure the maximum benefit is available to you upon your retirement.