Why should I get superannuation?

Hey,
I don't know too much about the details of super, but I'm self employed and haven't saved up any super whatsoever. I have put money aside to spend on either property or in my goal saver which is getting me I think 3.5% interest.

What are the positives and negatives of having super?
I've always thought I may as well use my money now so I can make use of it for business and property and retire early enough with a passive income that I won't even need or care about super..

Before I get my head bitten off, I'm only 25 and have spent 2 yrs out of uni and have been self employed for 2 years and haven't been taught too much about super other than I should put a little away for it..

What are the pro's and con's of having super and what are the pro's and cons of using my super money iimmediately to make me more money now instead of saving it
 
First of all good for you for being so entrepreneurial and being self employed. It takes a lot of determination and resilience to do what you are doing and that is very admirable.

Super is really designed to (ideally) eliminate reliance on government provided pension schemes. Realistically there will always be a portion of the population requiring some kind of welfare support but by the time you are old enough to claim a pension there won't be enough people working to pay the taxes required to support the current numbers of people claiming pensions from the government. That is really broad brush but it's the nuts and bolts of it.

You can continue to do what you are doing, but you should seek some long term investments (whatever they are) and also make sure you are adequately insured so if you are unable to work due to injury or illness that you can still support yourself.

The benefits of super are that contributions are taxed at a lesser rate (someone on here will know what they are, it's either 15 or 30%), your money is locked away until retirement age so you can't dip into it unless there are dire circumstances, and you have a professional fund manager that pools your money with everyone else's to get optimal investment rates and therefore give you better returns than the average punter off the street investing the same way his or herself. At least that's the theory. You may also be able to access various insurances through your super of which the premiums are being paid from your super money.

Disadvantages are all of the above, plus you have either very little or zero control over how your money is invested and the professional service you receive also comes at a cost.

For you, you will need to consider whether you can do a better job of investing for your future than a professional fund manager. My view is that you should seek professional financial advice as you want to set yourself up for a comfortable future life, and being informed about the options will allow you to make the decisions that control your future.

Good luck
vtt
 
What are the pro's and con's of having super and what are the pro's and cons of using my super money iimmediately to make me more money now instead of saving it
That was my question. I've always been sceptical about when I'd get access to MY super - the rules have changed so often I had zero trust in the govt. For me the tax benefits never outweighed the lack of certainty.

Now I feel I'm close enough to the magic 60 that I treat my assets as 2 buckets, one tax advantaged one that I now have reasonable certainty that I will get full access to when I hit 60, and another that I need to last me until then - so I've started making contributions.

I'm certain that I'd do the same again if I were 25 now. The age you will be able to access it will probably be increased to 75 for your age group - there just aren't going to be enough people working to support the pensioners.
 
every client I speak to about retirement planning who doesn't have much $$$ usually starts the conversation with....


" Yeah I don't have much in super, I was self employed for a while...."


Do yourself a favor and just put money in your super, treat it like a tax on your income. and don't just put a piddly amount in, make it at least 10% of your profit. And not just once a year do it every fortnight.

I have never met anyone in the 60-65 age bracket who has said to me, mate I regret making large contributions to my super ever since I started working. Those blokes are sitting pretty.

I have met plenty of people who think super is a rip off and have never contributed, they generally have very small balances and have the age pension as their only source of income.

The Govt will screw you no matter where you have your money. Doesn't matter if its in your own hands or in your super.
 
It's different for each person.

For me, currently at least, i have zero interest in Super and ensure minimum (preferably none) goes towards it. It's not part of my plans at all.

Reasons
- too much uncertainty with how it can be tinkered
- life expectancy isn't much past Super age
- absolute multitude of other wealth options available that don't really need to look at Super or other ideas/structures really.
 
I am very happy that we have had super. Even with me not having contributed for 19 years and hubby for five years, our super covers our loans.

I have no regrets at all.
 
Top bracket PAYG and wife is major trust beneficiary and will be top bracket next financial year, so max salary sacrifice for both of us into SMSF, (60k pa joint). It's all about tax efficiency and compounding for the very long term. One of us will be alive to recieve it at least lol. It's one of our family investment baskets only.
 
Super is a concessionally taxed retirement savings vehicle. Its should be a part of EVERY persons financial strategy with less emphasis for younger people rising with age. For some it takes less emphasis than property BUT should never be excluded for that reason.

Super in Australia has often been called the worlds last legitimate tax scheme. It is riddled with strategies and tax benefits. Those who don't use it lose it.

Facts :
- Tax rate on earnings in super for people aged from 55+ as low as 0%
- Tax rate on capital gains from property in super aged 55+ = 0%
- Tax rate of withdrawals from super aged 60+ 0%
- Tax rate going into super - Up to 15%
- Value of deduction for contributions to super - Taxpayers marginal tax rate or company tax rate.
- Maximum limit to super balances = No limit generally

The question most asked by property rich people approaching retirement is "How can I reduce my tax bill" and the other is "Can a SMSF buy my properties". Unfortunately the options may be very limited. Also they end with illiquid options for tax free earnings etc.

Those without consideration of super tend to be financially exposed with far less asset protection. Its not unusual to hear stories of 50-65 years olds losing the lot and having zero assets as a consequence. However super is creditor protected. Many of Australia's wealthiest people have VERY large super funds for that reason.
 
Paul, in view of your reply, I'm keen to hear your opinion on this...

I am 55, working PPT 10 hours per week, can easily resign if that helps my position.

My brother are I have agreed that I will take half of the value of the family trust. As part of that process I "could" move a house from the name of the family trust and put it in my name. This will push me into land tax territory (part of the reason we are splitting up the trust).

I could put it into a new family trust but the UCV is over the trust threshold, so that doesn't work.

We will pay stamp duty to move it to a different ownership name, and then pay tax on the rent going forward, and one day it will be sold and capital gains tax will be paid. (There is minimal capital gains tax for this property if sold right now, as it was reset when it went into the trust and prices haven't moved much.)

Because we have costs to move it from the trust to a different ownership entity anyway, I'm thinking we could just sell it to the market and then I could buy a different house within a brand new SMSF.

If I do that -

1. Do I get the rent, or does it go to the super fund and I cannot touch it?
2. Is tax paid on the rent coming in?
3. When the house is sold, do I pay capital gains tax on the profit?
4. If this is held long term, and goes to my (our) children, do they pay capital gains tax?

Sorry if these are basic questions, but I (clearly ) have no real understanding of how holding a property in super works, or the benefits.
 
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That was my question. I've always been sceptical about when I'd get access to MY super - the rules have changed so often I had zero trust in the govt. For me the tax benefits never outweighed the lack of certainty.

Now I feel I'm close enough to the magic 60 that I treat my assets as 2 buckets, one tax advantaged one that I now have reasonable certainty that I will get full access to when I hit 60, and another that I need to last me until then - so I've started making contributions.

I'm certain that I'd do the same again if I were 25 now. The age you will be able to access it will probably be increased to 75 for your age group - there just aren't going to be enough people working to support the pensioners.

That's the thing..Why put money away to access it at 70? What am I gonna do with 500k at that age? Can it be accessed earlier?

The way I see it is yes there are tax benefits, but other than that, what's the benefit of having so much money locked away until I'm old and my body can barely move anymore... I figured i'd just use all that money that's meant to go to super..

I'm still waiting for that lightbulb moment when someone comments and convinces me I should get super..If I'm not successful and have enough to chill by the time i'm 70 then I deserve to be on the pension.
 
Wylie - We may have discussed this before. s66(1) of SIS Act doesn't permit a SMSF to acquire that property if its residential rental. The rule prohibits both direct ownership or a limited recourse loan to acquire it.

If this was not a issue (ie if it was commercial property) then in theory the property could be transferred inspecie to a SMSF and count towards your non-concessional contribution cap under the three year bring fwd rule. This strategy could apply to more than one member so that you and spouse could do this and a property valued around $1m acquired. This would allow access to a separate LT threshold and the rents would be taxed at up to 15% and potentially any future CGT could be at 0%. Obviously personal advice would need to consider more than this such as how pensions may be paid in the future.

The super fund would be taxed on the rent. 15% until you get to "pension age"...55-60 ? Tax is then 0% on rent or CGT. Land tax threshold - Yes.


The selling to market option may be the option. Then consider long term financial strategies so that over the next 10 years you use the SMSF to protect income from tax. Every case is different and assessment of benefits and specific strategies could be explored.

Your comment about a separate trust for land tax may be askew. A separate trust would access a new (lower) threshold. Where in own name it is a 100% addition to taxable value ? You still save $. Land tax is just one small part and not in itself reason to establish a SMSF.
 
As others better edumucated in this field have said: it's designed to reduce dependency on the pension however the mandatory amount of 9.5% is woefully inadequate. Something more like 15% is more appropriate from early on in your career ie 50% underfunded. Trust me, you won't miss it.

One advantage is it provides diversity for your investments ie over 80% goes to equities (shares) which most property investors don't follow. The property which funds invest are commercial and retail assets not residential so they are counter-cyclical.

Generally low risk due to long investment horizon.

Then there are tax advantages eg only taxed at 15% in the accumulation phase and zero after your release date.

Disadvantages include: locked up until the preservation age, subject to government policy. You can't get your hands on the capital that quickly either if you have to sell a house or unit for that matter either.

No control over the costs of the fund (industry funds vs retail fund arguments), little control over investment strategy unless smsf.

There are caps as to how much you can contribute however with 2 -4 members contributing to a smsf a large cash resource accumulates quickly if each contributes the maximum amount.

Provides tax effective insurance coverage - life, tpd, & accident.
 
Its should be a part of EVERY persons financial strategy with less emphasis for younger people rising with age.

Bit of a blanket statement? I'm 33 in a few weeks, so not exactly "younger".

It conveys zero benefit to me. The lower tax rates, concessions etc, have no appeal because they simply allow for further investing within that enclosed space. With the ever increasing age that you're allowed to access it, and my ever decreasing time in being able to access it (based on my family members averages), why would it be part of EVERY persons financial strategy?

I've deliberately setup my business structure in a way that allows me to legally pay myself little to no super. I'm always open to more ideas, though, so fill me in if I'm missing something.
 
Wylie - We may have discussed this before. s66(1) of SIS Act doesn't permit a SMSF to acquire that property if its residential rental. The rule prohibits both direct ownership or a limited recourse loan to acquire it.

Sorry if I confused you with my back story. I know from earlier questions to you on this topic that I cannot move a house from the trust to a SMSF. I was thinking that instead of paying stamp duty to move this to my name (or a trust), we sell it and I buy a house we have no link to and hold it in a SMSF, especially if that means we may avoid capital gains tax into the future.

If this was not a issue (ie if it was commercial property) then in theory the property could be transferred inspecie to a SMSF and count towards your non-concessional contribution cap under the three year bring fwd rule. This strategy could apply to more than one member so that you and spouse could do this and a property valued around $1m acquired. This would allow access to a separate LT threshold and the rents would be taxed at up to 15% and potentially any future CGT could be at 0%. Obviously personal advice would need to consider more than this such as how pensions may be paid in the future.

The super fund would be taxed on the rent. 15% until you get to "pension age"...55-60 ? Tax is then 0% on rent or CGT. Land tax threshold - Yes.


The selling to market option may be the option. Then consider long term financial strategies so that over the next 10 years you use the SMSF to protect income from tax. Every case is different and assessment of benefits and specific strategies could be explored.

Your comment about a separate trust for land tax may be askew. A separate trust would access a new (lower) threshold. Where in own name it is a 100% addition to taxable value ? You still save $. Land tax is just one small part and not in itself reason to establish a SMSF.

Thanks for the reply. I'm putting one house into my name and that one house UCV is almost at the threshold. We looked at different options but holding one in my name was the best.

If I put another house into my name, it pushes me over the threshold. If I buy in a trust, it is already over the lower trust threshold.

I'm guessing a SMSF has the same threshold as a trust?
 
I am personally a fan of super for several reasons, I can salary sacrifice at my marginal rate and only pay 15% tax, it is great for cheap insurance cover and recent returns have been excellent. Ocassionally my contributions have gone over the concessional cap.
I like it for diversification purposes because although we have a Commsec and an Etrade account we only have a small share portfolio compared to our property holdings
The problem is not Super itself but the potential for future government intervention .
 
Thanks for the reply. I'm putting one house into my name and that one house UCV is almost at the threshold. We looked at different options but holding one in my name was the best.

If I put another house into my name, it pushes me over the threshold. If I buy in a trust, it is already over the lower trust threshold.

I'm guessing a SMSF has the same threshold as a trust?

A SMSF gets same TH as a individual. Higher than a trust in QLD.
 
I am personally a fan of super for several reasons, I can salary sacrifice at my marginal rate and only pay 15% tax, it is great for cheap insurance cover and recent returns have been excellent. Ocassionally my contributions have gone over the concessional cap.
I like it for diversification purposes because although we have a Commsec and an Etrade account we only have a small share portfolio compared to our property holdings
The problem is not Super itself but the potential for future government intervention .

Govt will always intervene. The chief reason they wont adversely harm super is that every dollar of super is a dollar of pension they will save. And with a growing ageing population its a election killer to harm retirees.

Its likely that the overly generous tax aspects (ie exempt income and member wdl) may be scaled back to a limited amount for all taxpayers. This is no different to acquiring property wealth. Property wealth is all taxable as income, and land tax and CGT and also counts against pensions. Most property people aim to bypass pension limits and so who cares ? If you can maximise tax savings then its all you can do.
 
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