Most countries have a system to encourage citizens to save for their retirement. In the USA they are called 401K Accounts, and, in the UK, they are called Pension Accounts. In Australia we call our system the Superannuation system.
Is our super system a good system? Would we get a gold medal in the ‘Super Olympics’?
When assessing a retirement system, the big questions are, how much investment choice and flexibility you have, and what access to your money you are giving up in return for the tax incentives offered. In Australia all types of super products operate under the same legislation around access and tax, but different types of products have more investment choice and better tax management. In this article we’ll focus on the overall system and next month we’ll delve into the different types of super products - industry funds, retail funds and self-managed funds.
Investment Choice. Like their UK and USA based competitors, Australian super funds can invest in a wide range of investments both directly and via managed accounts. You can invest in traditional assets like cash, fixed interest, shares and property as well as the newer, less proven trading investments like currency and crypto. However, all investments must be for the sole purpose of funding the members retirement and there are rules to stop schemes to derive any benefits from your super investments before retirement. In all three country’s systems it is possible to borrow or gear to help purchase investments in your super account. On these criteria, our system is pretty good and line ball with the USA and UK.
Where our system really shines is regards tax benefits and access. There’s always a trade-off for the generous tax benefits of super in losing access to your money until retirement. In our system the tax benefits are huge, personal marginal tax rates for the bulk of people working full time are in the 34.5% bracket ($45,000pa to $120,000pa) with higher income earners, like miners, often in the second highest bracket on 39% ($120,000pa to $180,000pa). Our super system is attractive in the accumulation period, pre age 60, where interest and deductible contributions are taxed at 15%. Even more so in the pension period post 60 and retirement where there is 0% tax on interest earned and 0% tax on pensions or lump sums drawn out. Full, tax-free access to your money in retirement.
Based on the unrestricted access to your money and a zero-tax rate in retirement, our super system is world class and takes out the gold medal at the ‘Super Olympics’.
If you think you could benefit from a discussion with a Financial Planner, give us a call on 49467359 of visit www.eclipsefp.com.au
There’s no obligation, the first meeting is free and all fees are spelled out clearly in advance. If you’re not sure, try coming to our Retirement Planning seminar in April, keep an eye on our Facebook page and this paper for details.
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