I get asked this question a lot. The government change the rules so regularly many have become disillusioned with the whole system.
In 2007 the notion of simpler super was brought out to make superannuation easier for the average person to understand and manage. The new raft of legislative changes, whilst not yet in force, are again making super hard to understand and manage effectively without professional help, enough so, it’s putting people off using it.
Let’s go back to the beginning. Superannuation was brought out as a savings system that would build a nest egg to provide an income to live on for the rest of your life when you have stopped working so the government doesn’t have to support you. It’s not an avenue to accumulate wealth to pass to the next generation as many people have in mind, nor is it a tax haven to store millions of dollars.
Superannuation is the most tax efficient system for someone to save funds for the future. You are able to accumulate funds at 15% tax rate and earnings in the fund are only taxed at 15% (as long as you earn under $250,000pa). Once in pension phase there is no tax to pay on either income drawn or earnings in the fund (provided you are in a fully tax paid accumulation fund, of course there are exceptions to the rule).
The latest rules of only being allowed to have $1.6 million in a super pension have caused a stir. In a couple if you have accumulated $3.2 million this would provide you on a conservative average an income of $120,000pa. This is double what ASFA calculate a couple over 65 require for a comfortable living in retirement.
There is also the measure to have a lifetime limit of $500,000 non-concessional contributions to superannuation going forward. Are there many people whom have over the $500,000 surplus to be able to make these type of large contribution? Probably not, but it will affect some people.
Yes the government are increasing the rules surrounding super again however they are not making it less desirable just tightening up the rules to stop the misappropriation of the system by a small percentage of the population.
To be able to save funds in a tax efficient environment and receive an income tax free upon finishing work hasn’t changed. We are going to need our own funds for retirement more and more. Next year’s changes to the age pension show this with even less of the population eligible than ever.
Certainly most people will need investments outside of super to provide accessibility but for your main income source in retirement super still wins hands down. You just need to know and be comfortable about where it is invested so it meets your needs. If you start your plan earlier than later you will be able to ensure you maximise the end result you achieve.
If you have any questions or wish to get further information please let the staff at Ritchie Advice know we would be more than happy to sit down and work with you to determine exactly what you need to do to ensure you are maximising the possibilities.
This advice may not be suitable to you because it contains general advice which does not take into consideration any of your personal circumstances. All strategies and information provided in this article is general advice only.
Ritchie Advice Pty Ltd ABN 12 150 128 448, is a Corporate Authorised Representative 408050 of Dover Financial Advisers Pty Ltd, Australian Financial Services Licensee No. 307248.
Erin Gourlay
