Michelle Bromley CFP®, Director – Strategy and Advice
In this article, we will consider the benefits of superannuation and whether investing in your own name or via an internally taxed investment might be an alternative.
Superannuation is currently the most tax-effective investment structure and enables retirees to draw an income stream that is flexible above a minimum required level.
Super is at the core of the Australian Government’s ‘three pillars’ approach to retirement:
There are, arguably, many advantages of saving for your retirement via superannuation:
Tip: A common strategy to maximise Centrelink benefits between couples is for the Age Pension age spouse to cash out tax-free benefits as a lump sum that is gifted to their younger non-Age Pension age spouse, who uses those funds to make a superannuation contribution and holds those benefits in accumulation phase until they too reach Age Pension age.
The complexity around the ever-changing superannuation rules and regulations can make it difficult for the average person to understand superannuation and what its attractiveness might be.
It’s a commonly heard argument, that the Government keeps changing the rules and one day they’ll just confiscate our hard-earned dollars.
However, that won’t ever happen because our superannuation balances are protected under the Superannuation law and under the Constitution of Australia.
One of the ways our superannuation is protected is that the money is held in trust by a regulated trustee, and most of us can exercise control over which trustee is managing our super account.
However, there are some attributes of our superannuation system that might mean you require additional financial planning advice depending on your circumstances
There is always the possibility of further and as yet unknown changes in the future. However, remember that superannuation is a key component of the Government’s retirement income strategy that saves our country billions each year in social security payments and improves the standard of living of retirees, so any future changes aren’t very likely to be too restrictive.
There may be personal circumstances where contributing more to super isn’t possible, or where directing funds outside the superannuation system is preferable. For example:
Tip: If you’re on lower marginal tax rates and are eligible for the Low Income Tax Offset and/or Senior And Pensioners Tax Offset it may be just as tax efficient to invest in your own name as investing inside super – although you’ll need to lodge a Tax Return to access those tax offsets and if you’re receiving Centrelink payments like the Age Pension you’ll have to report changes to your investments to Centrelink.
Tip: Insurance Bonds are not only tax effective, but they are also particularly useful for estate planning or benefiting grandchildren as you can nominate a “life insured” and one or more “beneficiaries” to make sure your wealth is directed exactly per your wishes. Amounts withdrawn after 10 years or paid out on death of the life insured are received tax-free.
Absolutely, yes. I have a lot of faith in our superannuation system and, because it’s so tax effective, it’s the main vehicle that I use to save for my retirement.
Like Aesops fable of the Ants and the Grasshopper, I’m a good little Ant who has started storing extra away for winter (or summer…I hope to retire somewhere fine and sunny!).
The Age Pension will still be around in 20 years’ time when I hit ‘pensionable age’, as Australia will always need social security as a failsafe, but I want to provide myself a better standard of living.
There simply isn’t another vehicle that provides a tax deduction on the way in, caps tax payable on investment earnings at 15% on the way through and, once you’re eligible to access, is tax-free on the way out!
The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.