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Superannuation
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What is super?
The total value of assets in the Australian superannuation system has now grown
to over $1 trillion. Superannuation is one of the most tax-effective investments
you can make for your retirement.
For many people as they enter retirement, their superannuation balance will be the second largest investment they will have accumulated, next to their home.
The following three pillars make up the Australian Government’s Retirement Incomes Framework:
- Compulsory employer superannuation
The Superannuation Guarantee (SG) of 9% is payable by your employer provided you earn more than $450 in a calendar month. (Age limits apply.) - Age pension
The maximum age pension applicable from 1 July 2008 to 19 September 2008 is:Single: $552.60 per fortnight.
There is an age test, assets test and income test to be eligible for a full or part age pension.
Couple: $919.40 ($459.70 each) per fortnight.
- Voluntary superannuation
Voluntary superannuation contributions can be either your personal before-tax (salary sacrifice contributions), after-tax contributions, self-employed contributions, spouse contributions and the Government co-contribution.
The benefits of super
A few simple steps can guide you on the way to a more comfortable lifestyle in your
retirement years. Here are a few ideas to get you started:Be aware of the super tax breaks
Super funds have tax concessions at three levels. On contributions, on earnings and on final benefit payments to members. Consider the following:
- Salary sacrifice (pre-tax) to super
When you salary sacrifice to a super fund, you are accumulating wealth for your retirement, which is taxed at concessional rates. Instead of being taxed at your marginal tax rate, (which may be as high as 46.5% including the Medicare Levy) the moneys you sacrifice to super are taxed in the Fund at the concessional tax rates applying to super contributions (currently 15%) and your income tax only applies to the balance of your salary.
Your saving through salary sacrificing is effectively the difference between your marginal tax rate and the super contributions tax rate. Salary sacrificing to superannuation does not affect your long service or annual leave entitlements. A Pre-tax guide is available from your local CSRF office and Fund staff will assist you in calculating the impact on your take home pay and your super fund account balance.
Salary sacrifice may not be suitable for everyone. If necessary, you should seek professional advice.
For further information please refer to the Pre (PAYG) tax guide - Effective 1 July 2008. - Take advantage of enterprise co-contribution agreements
In some enterprise agreements, there is an incentive to contribute to super by way of an employer co-contribution above and beyond the legislated 9%. This will enable employees to build up their super retirement balances significantly over their working lives. You may contribute to super on a pre or a post-tax basis, or a mixture of both.
Contact your local CSRF office on 1300 658 776 to see if there is an Enterprise Co-contribution Agreement in your state.
- You may be able to make a spouse contribution and receive a tax offset (rebate)
A rebate of 18% on up to $3,000 of contributions made on behalf of a low-income or non-working spouse is available. The maximum rebatable contribution reduces by $1 for each dollar by which the spouse’s assessable income, plus reportable fringe benefits, exceeds $10,800. A spouse earning more than $13,800 pa will not be eligible for the spouse contribution tax offset.
A $3,000 spouse contribution would provide a $540 tax offset (a reduction of actual tax payable) for the working spouse.
- Consider the tax advantages of an allocated pension income stream
On retirement after preservation age, you may rollover moneys from your superannuation account to a CSRF allocated pension with its low-cost fee structure, flexibility, same proven performance and many tax advantages.
Investment income and capital gains within the Allocated Pension Plan are entirely tax-free and are 'income friendly' for Centrelink pension test purposes.
A Non-Commutable Allocated Pension (NCAP) can commence from age 55 and provide tax-free income from age 60. For more information on transition to retirement strategies please contact your local CSRF office on 1300 658 776.
Lump sums are not taxable on entry or exit from the superannuation system. You may receive an inheritance or sell an investment property and want to grow the proceeds tax effectively until retirement. Please note contribution limits apply from 1 July 2007. Contact your local CSRF office for more information.
Earnings in the super fund are taxed at only 15% (compared with your marginal income tax rate of up to 46.5%, including Medicare Levy) and 10% on most capital gains. People whose annual assessable income is less than $60,342 may also benefit through the Government's Co-Contribution Scheme.
Know what additional benefits your super fund offers
Are you aware that you may be able to take out or increase death cover, Total and Permanent Disablement (TPD) cover and income protection insurance through your super fund? Taking life insurance cover through super can be particularly cost-effective and relatively pain-free as you do not have to fund the premiums directly; they are deducted directly from your super account. Premium savings are a result of the fund's bargaining power in obtaining cheaper wholesale rates from insurers because the Trustee purchases insurance in bulk and the fact that the insurance premiums are tax-deductible to the super fund. This tax deductibility offsets some of the 15% contributions tax applicable to super contributions so your premiums are tax effective.
If you are an eligible Employer Sponsored Plan member, you may also be eligible for automatic acceptance of insurance cover without the need for underwriting or justification of your state of health. Depending on your condition of health, you may have been unable to obtain cover previously outside of the super system or it may have been subject to loadings, which would make it prohibitively expensive.
Consolidate your super accounts
There are more than 27 million super accounts in Australia for a population of less than 21 million and more than $18 billion recorded in lost super. Is the unnecessary duplication of administration fees eroding your retirement lifestyle?
We suggest that you research your existing super funds and choose a fund, such as CSRF, which can offer you low fees, good performance and personalised service. Imagine not having to speak to a computer or having to press buttons before you can speak with a trained superannuation specialist who can assist you with CSRF’s features and help simplify super for you!
CSRF’s default investment option (Balanced) has a Management Expense Ratio (MER) of just 0.84%. This is much lower than some of the retail funds.
If rolling your other funds into CSRF, remember to check what the exit fees are—there are no entry fees in CSRF. Also check whether you have any insurance with the other fund.
Rollover form
Is your fund a proven performer?
Monitor the performance of your fund over a long period, say 5–10 years and see how it has performed relative to its peers. All super funds suffer periods when the markets are down and you should not panic if your fund has one bad year. However, if your fund performs poorly for several years or underperforms the rest of its rivals, then consider switching. CSRF has continued to provide solid returns over the past 25 years, with only one negative return in the default Balanced investment option (-0.5% to 30 June 2002 when the average return for super funds was -2.3%).
CSRF Superannuation investment returns CSRF Allocated pension investment returns
Know your investment time horizon and where you are invested
If your money is to remain in the super investment vehicle for under five years, your horizon may be thought of as short-term and you may possibly wish to be a little more conservative with your investment strategy. For all other long-term investors you should assess your comfort with different asset classes, map your investment strategy and stay on course. If your investment strategy has integrity it will survive the ups and downs of investment markets and a negative or poor performance period of a few years should be viewed in the light of the length of the investment overall. Investors who have chosen a strategy that properly reflects their needs and circumstances should maintain their faith and stick to their plan unless their circumstances change.
CSRF offers a choice of 10 investment options ranging from the most defensive to those with an almost complete exposure to growth assets. You may choose one or a combination of any 10 of the investment options available. The choice is yours.
For further information please refer to the Fund’s Product Disclosure Statement.
Keep an eye on the costs
Some super funds charge much higher fees than CSRF. When comparing CSRF with a higher-cost fund, you should check whether your are receiving any benefits, such as higher investment returns or better services, to justify the extra costs.
CSRF charges only what is necessary to manage the Fund - we do not pay commissions or dividends, so we are able to keep our costs as low as possible.
For further information, please refer to the Fund’s Product Disclosure Statement.
Be flexible
If you are in good health and not averse to working a little longer or doing some part-time work, then you may be able to phase into retirement or even postpone your retirement for a few years. Working even a couple of extra years can have a spectacular effect on the quantum of your retirement savings.
Should you wish to further discuss any of the above points or wish to obtain some projections on your estimated superannuation retirement balance under a number of different contribution scenarios, contact your local CSRF office on 1300 658 776.
