Superannuation is one of the most tax effective ways to save for your retirement. Super provides you access to a wide range of investment options, often the same options as in a non-super fund including managed funds from leading fund managers and some super products also provide the option of direct shares. 

Investments in super are taxed at a maximum of 15% versus potential tax of up to 46.5% outside of super so as far as your retirement goes, there are more reasons to invest in super than outside of it. Best of all, benefits paid from your super fund are tax free after you reach 60 years old. The table below compares a non-super investment with a super investment.

Super investment vs Non-super investment (Source: ING Australia)
	Non-super investment	Super investment
Initial contribution	Paid from your after-tax income where you would have paid tax at marginal tax rates up to 46.5% (incl Medicare Levy)	In general, a 15% tax applies on contributions to super including compulsory super and salary sacrifice contributions where a tax file number has been provided.
Earnings tax during the investment	Assessable earnings are taxed at your marginal tax rate.	Assessable earnings are taxed at 15%.
Tax on withdrawal	Capital gains tax applies on any gain at your marginal tax rate. (50% discount to assets held for at least 12 months)	For most people 60 and over who receive super benefits from a taxed source, payment of a lump sum or income stream is tax free.

Case study: Meet John
John is 30 years old on a salary of $85,000 pa (marginal tax rate 41.5%*).  John wants to retire at 60 and has $500 in pre-tax salary to invest in each month. John is considering two options: investing after-tax salary outside of super or making salary sacrifice contributions.

Case Study: John (Source: MLC)
	Non-super investment	Super investment
Pre-tax salary	$500	$500
Income tax at 41.5%*	($207.50)	N/A
15% contributions tax	N/A	($75)
After tax investment	$292.50	$425
Additional investment		$132.50

After 30 years, John would have $417,843 if he invested outside of super and $775,639 if invested inside of super^.

*Includes Medicare Levy of 1.5%
^A 30-year comparison based on investing $500 in pre-tax salary per month, indexed at 3% pa. Both investments earn a total pre-tax return of 8% pa (split 3% income and 5% growth). Investment income is franked at 25%. All investment income is reinvested. Both investments are cashed-out at the end of the 30-year period. All figures are after income tax (at 15% in super and 41.5% outside super) and capital gains tax (including discounting). These rates are assumed to remain constant over the investment period. No lump sum tax is payable on the super investment as Simon will be aged 60 at the end of the investment period.

Smarter Super - FPA