Whether you are in your first job after leaving school or only a few years from retirement, it pays to understand how superannuation works. By the time you are ready to retire, your superannuation could have grown to be one of the largest assets you will have in your life.
Superannuation is your investment in your future, so it is really important that you understand why you need it, what you're entitled to, how you can grow your superannuation and how you can best manage the money for your retirement.
What is superannuation?
Superannuation, or ‘super', is a way to save money for your future. Its purpose is to help fund your retirement so you do not have to rely on the social security system to fund your lifestyle.
A common misconception is that super is a type of investment, like cash or shares. In fact, super is the framework into which you invest. Through super you can hold a wide range of investments such as shares, property and cash. Many investments that are held outside of super can also be held within super.
The reason that superannuation is so attractive as an investment vehicle is because it receives favourable tax treatment, both when you are working and once you have retired. The Government offers these tax savings to encourage you to build your superannuation assets.
The tax benefits of superannuation include:
- Contributions made to super may attract a tax deduction or tax offset
- Investment earnings are taxed at a maximum of 15 per cent, rather than your marginal tax rate. Capital gains are taxed at a maximum rate of 15 per cent.
- Your super benefit can be paid as a tax-free pension or lump sum when you reach 60 and satisfy the criteria to access your funds.
Most people are first exposed to the concept of superannuation when they start work. This is because employers have to pay superannuation contributions on behalf of their employees. Your superannuation does not only grow through contributions made by your employer. You can choose to add money into superannuation out of your own pocket. If you are self-employed, you can choose whether or not to contribute to superannuation.
The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.