Superannuation is an excellent way to invest money for your retirement. It’s about planning a path for your future and making the most of your investment dollars to generate the income you will need once you retire. For many Australians, it is the key to a secure and financially independent retirement. An effective superannuation fund makes more options available to you - such as choosing to retire early, having more leisure time or working less.
According to Macquarie Bank’s equity strategy team, Macquarie Research Equities (MRE), superannuation is now one of the most popular forms of wealth accumulation for the majority of Australians. There is almost $700 billion invested in superannuation in Australia and MRE analysts have forecast that this figure may more than triple to $2,450 billion within 10 years.* And with people retiring earlier and living longer, the importance of superannuation continues to grow.
Superannuation remains one of the most tax-effective means of creating retirement wealth. Those who hold a super fund benefit from tax concessions that apply to contributions, to earnings within the fund and to the accumulated benefit.
Superannuation provides the following tax benefits:
- It is internally taxed at a maximum of 15% while in the accumulation phases (ie non pension phase)
- Capital gains tax is reduced to 10% for assets held more than 12 months
- Capital gains tax is eliminated (i.e. 0%) where an asset is held in accumulation phase and retained in the same fund to pay a retirement pension
Super contributions
All contributions and investment returns are generally taxed at a flat rate of 15%. For many people, an investment in super could outperform an equivalent investment outside super, due to these tax benefits. As super is a long term investment where all earnings are reinvested and any returns compounded, the earlier you begin making decisions, the more effective your super will become upon retirement.
For those who are less than 10 years away from retirement, it is worth thinking about whether you would be better off adding to your super rather than your investments outside super. You receive all the tax advantages of investing in super, as well as being able to access your super completely tax free after you turn 60. Any investments and earnings you hold outside super when you retire will be subject to your income tax rate of up to 46.5%.
*MRE report dated 10 May 2006
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