Reasons to invest in Superannuation| Saving for Retirement |
Superannuation provides a vehicle for saving for retirement. The government has set up an environment that encourages people to provide for themselves in retirement. For example, the co-contribution scheme where the government adds to your own superannuation savings, or the tax deductibility of some contributions, means that it can be significantly better to invest via superannuation than outside. The government has also made the alternative, the age pension, so unattractive that it would be difficult for most people to live comfortably. The main reasons that superannuation is attractive are as follows: |
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| Low Tax Rates |
Superannuation has tax advantages that are not available outside of super. Plus there are major changes happening from 1 July 2007 that makes superannuation even more attractive. After retirement the tax benefits. The tax rates payable on superannuation fund investments are as follows.
If the investment is held outside of superannuation then you pay your marginal tax rate which takes into account all your other income first. Personal tax rates are as follows:
¤ Medicare levy 1.5% added to these rates If you are working and have money to invest there could be significant tax savings by investing in superannuation. For example, if you were earning $50,000pa and had $400,000 to invest at 5% the tax saving annually would be: Tax personally $6,850 Tax in Super $3,000 Tax Saving $3,850 pa If you have no other income and have $600,000 to invest at 8% the tax saving would be: Tax personally $ 8,340 Tax in Super $ 0 Tax Saving $ 8,340 pa * (* for those over 60 or those with substantial non-concessional contributions) Since 30 June 2007, if you are 60 and in pension phase, the super fund pays no tax and you pay no tax on money drawn out of super. You don't even include it in your tax return. |
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| Tax Deductibility |
There can be significant benefits in claiming a tax deduction for superannuationcontributions. If you are self-employed or you can salary sacrifice, you can receive a tax deduction for contributions made to superannuation up to a limit (after June 2009 the limit will be $25,000 per year unless you are over 50 where the limit will be $50,000 until June 2012). If you are paying tax on your salary or business income at say the top rate of 46.5%, you will reduce your tax to 15% (contributions tax) by contributing to superannuation, thus saving 31.5% tax Also, if you have a significant capital gain from the sale of an asset, you may be able to offset that by contributing to super (your salary income has to be less than 10% of your total assessable income for the year) Superannuation investments may receive superior treatment under the Income Test. In some cases it is not counted at all. There can be significant benefits from receiving just $1 of age pension. The Government supports low income earners saving for retirement by contributing up to $1,000 into your superannuation fund for a $1,000 contribution made by you. |
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| Favourable Centrelink Treatment |
Superannuation investments may receive superior treatment under the Income Test. In some cases it is not counted at all. There can be significant benefits from receiving just $1 of age pension. |
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| Co- Contribution |
The Government supports low income earners saving for retirement by contributing up to $1,000 into your superannuation fund for a $1,000 contribution made by you. |
Reasons to invest in Superannuation
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