Posted on 10/11/2016
Ever since the Global Financial Crisis (GFC) in 2008, superannuation has suffered from somewhat of an image problem.
The sharp hits that many balances took during that time shook people’s confidence in the retirement savings vehicle, and more recent moves by governments to reform superannuation have only exacerbated the problem.
But according to Lisa Palmer, Financial Planning Practice Manager at Statewide
Super, generous tax concessions, as well as the forced discipline to put money aside, are the key reasons why superannuation is still your best bet when it comes to funding your retirement.
A tax haven
“If you can salary sacrifice or make tax deductible contributions, you pay contribution tax of 15% rather than your income being taxed at your marginal tax rate,” Lisa said.
“In addition to this, the earnings are taxed at up to 15% - in comparison to your marginal tax rate.
“But the real magic happens once you turn 60. Under the current rules, once you hit 60 any payments you take from your super, whether in a lump sum or super income stream, are tax free.
“A superannuation-based income stream is a legitimate tax-free environment. There is no other investment structure where you pay no tax on earnings#, no capital gains tax and no tax on withdrawals from age 60.”
These tax concessions come with ‘strings’ attached and Lisa believes one of the big concerns is the inability to have ready access to your funds. Current preservation rules mean access is generally available once you reach age 56 with this climbing to age 60 by July 2024.
“Whether this is reasonable or not is not being debated here, but what we do know is that over the past 20 years, total household debt in Australia has climbed from about 75 per cent of total disposable income to more than 180 per cent – one of the highest debt-to-income ratios in the developed world,” Lisa said.
“This high debt-high consumption environment means many Australians dislike the access restrictions of super – but in most cases, this actually protects us from ourselves.
“If we had easy access to super, it may be too tempting to draw on it whenever you find yourself in a sticky situation or needing extra funds.
“Access rules are just one of the reasons our $2 trillion superannuation system has grown to be the fourth largest pool of funds in the world, and why super is still your best bet in ensuring you have funds for your eventual retirement.”
Government super reforms
Given the magnitude of funds invested in Australia’s superannuation system, many are predicting that the Government will not continue to forego such a rich source of potential income and will make moves to tax super more heavily in the future.
In the 2016-17 Federal Budget a host of superannuation reforms were proposed. Included in the reforms was reducing the cap for pre-tax contributions – achieved through compulsory contribution and salary sacrificing – to $25,000 for everyone. It currently stands at $30,000 under age 50, and $35,000 for ages 50 and over.
However, despite these potential changes Lisa believes the government will continue to maintain a more appealing environment within superannuation because it has an interest in ensuring people are self-funded in retirement, rather than relying solely on government pensions.
“The proposed changes by the government continue to frustrate and confuse people, which is such a shame, because superannuation has such enormous benefits,” Lisa said.
“I’m confident that superannuation will continue to provide a concessional tax environment, but unfortunately, that doesn’t mean there won’t be changes to super in the future.”
Take an interest
The ease of contributing to super means that many take a ‘set and forget’ approach, but Lisa said it was important that people take an active interest in their money.
She said the different super investment options, as well as fees charged by your super fund, are important factors that affect long-term growth of your superannuation.
Most super funds allow you to choose a range of investment options. The difference between investment options is mainly how much investment risk you are willing to take on.
"If you had $20,000 in your pocket, would you hand it over to me and take no interest in what I did with it? It’s highly unlikely," she said.
"But for some reason, people put significant sums of money in superannuation and take no interest in how it is being invested, or how fees are eating into it over time.
"People should be active in managing their money. If you want low volatility then investing in cash and fixed interest may be more appropriate, whereas if you’re more pragmatic and are targeting a higher long term return, a higher weighting towards shares and property, with less allocated to cash and fixed interest, may be more suitable.
"These decisions need to match your risk tolerance and speaking with a Statewide Super Financial Planner can help you identify your goals and better understand your appetite for risk.
While retirement might feel like a lifetime away, without the right amount of savings, your retirement might continue to be a distant dream.
"Making voluntary contributions to your super early on in your career, even a few dollars from each pay, can make a huge difference to how much you have when you retire due to the power of compounding returns," Lisa said.
"Most people don’t want to work forever and the Federal Government is clear that it can’t support the pension in its current form indefinitely – so it means we are progressively going to fund our own retirement more and more," Lisa said.
"Super can provide a huge benefit that you’ll be thankful for later in life."
# Pending legislation may alter this for TTR Pensions only
 Statewide Super holds an Australian Financial Services Licence (AFSL) that allows it to provide both general and personal financial advice. Lisa Palmer is an Authorised Representative of Statewide Superannuation Pty Ltd . For further information and a copy of the applicable Financial Services Guide, visit www.statewide.com.au or call 1300 65 18 65.