Getting older typically comes with many life changes including the impact or change to finances for most Australians. There has become a debate in regards to the superannuation account that Australians are given to take part in to plan for retirement and savings later in life.
All working Australians should and can take advantage of a superannuation account. This is a compulsory in which employees to pay 9.5% into in order to help save for retirement. Sounds great right? Many would assume that all working Australians would like to take advantage of a such a system to help them live comfortably in retirement. However, many people are disengaged with their super and in many cases don’t particularly care for it or look at it as a worthwhile investment to put their finances into. The debate has mainly in part been in correlation with the Age Pension with is already in place by the government. Like most payments given from the government, the Age Pension has eligibility requirements and a process which must be followed in order to start receiving payments. This pays out a steady income after the age of 65 and comes from different types of tax collections in Australia. It is solely a government payment.
Perhaps part of the reasoning behind this disengagement is that as humans we tend to disconnect somewhat in terms of long-term thinking of the future. There is also the fact that the government has been known to change the rules and goal posts which in turn leads to people having a lack of faith in the system as a whole. Whilst some changes do occur, one should not lose sight of the sole purposes of superannuation, which has never changed to assist people in becoming self-sufficient by the time they reach retirement.
A key aspect that many may have found an issue with is the government putting restrictions on when an individual can withdraw these set aside super funds. The point of a super though is to secure a nest egg for the future. Therefore, the government restricts withdraws to be taken at the age of 60 years or later, otherwise the person will be taxed upon the amount taken from this retirement fund.
You can decide to have your regular SG contributions paid into your employer’s nominated default super fund or choose your own fund. You can also choose or change funds at any time – but your employer is only obliged to act on your choice once a year by law. You can also check on your funds via an online account which would be best to at least do once every couple of months. Even if your super fund isn’t linked to your everyday banking, lots of super funds provide great online account management tools. It is suggested to check on the account with these tools to make sure your employer is properly paying into your super as agreed upon and that you are making the most of your investment.
Whether you agree with the governmental requirements or not, there is one key aspect of superannuation that cannot be argued. That is that the numbers don’t lie. More than anything, this system is a tax structure and a very good one at that. The most effective of any alternative investment. For most, employer contributions (both on the employers behalf and the individual salary sacrifice) accrue a 15% contribution tax rate, oppose to the relevant taxable rate of their income, which is likely double if not more. Furthermore, the tax on the earnings (capital gains) is also reduced inside superannuation (versus out).
Let us not forget about Albert Einstein’s statement in regards to this that the power of compound interest is one of the most powerful forces in the universe. It’s hard to think one could benefit from this more than the forced savings and long-term nature of superannuation.
If one takes the time to research and educate themselves in regards to superannuation it is likely that it will assist in reframing the thinking of the many who don’t seem to see the need to engage in this system. A few tips to help in educating yourself or others on this system to consider are:
- Do you know where all your superannuation is, if not, find out?
- If you have more than one fund, look at consolidating them.
- Have you considered your investment choice?
- Have you considered putting in extra (e.g, salary sacrifice)
- Have you reviewed your insurance to see if you have appropriate cover?
- Have you nominated a beneficiary?
With even a basic understanding of superannuation, it should all begin to make sense. Whether you are considering retirement years down the line or would just like to enjoy a life of leisure, with the right knowledge and understanding of super, you will realize the benefits and that it is never too late to start saving money.
In Australia it is hoped that in defining a core purpose, Australia will aspire to something more than just the mere replacement of the Age Pension. The objectives of this as a whole are that it should aim to:
- Provide significantly better outcomes for individuals than the Age Pension;
- Significantly reduce the Government’s costs in terms of the Age Pension;
- Encouragement of taking an active role in planning for the future and retirement;
- Discourage the use of the system as a general wealth accumulator
It is all about finding the right super to meet your personal retirement goals. Even for young employees, it is okay to not know those exact goals, but to understand the importance of getting the most out of your investment. After all, it is your future – your nest egg.
References:
“Super Basics: First Steps in Superannuation”.
https://www.industrysuper.com/understand-super/super-basics/
“What is the Purpose of Superannuation?”.
https://virginmoney.com.au/superannuation/understanding-super/how-does-super-work-in-Australia
March 2016. “Australian Age Pension Eligibility Requirement”.
https://www.finder.com.au/australian-age-pension-eligibility-requirements
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