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Superannuation

Is super still best?

Chris Morcom
Partner/Private Client Adviser
4 Feb 2013

The recent proposal from the Australian Institute of Superannuation Trustees (AIST) encouraging the government to place a limit on the amount a person can withdraw from superannuation as a lump sum to $250,000 has got me thinking:  

Is superannuation still the best place to accumulate money for retirement?

Let’s look at some of the main For and Against points…

For

  • Concessional tax on salary sacrifice contributions to superannuation – for those that can, salary sacrificing to superannuation up to the maximum allowable cap can save up to 31.5% of that contribution in tax
  • Investment earnings are subject to maximum tax of 15% while you are accumulating your balance
  • Mandated employer contributions of 9% of your salary
  • Life and Total disability insurance cover, the premiums for which you don’t have to pay with your after-tax salary
  • Tax free withdrawals from your fund once you are over 60 and retired
  • No tax on investment earnings when your fund is paying you a pension

Against

  • Limited scope for salary sacrifice contributions, with a maximum of $25,000 a year…and this limit includes your employer contributions
  • Maximum personal after-tax contribution of $150,000 (or $450,000 over three years)
  • Extra costs of managing your money – different super funds have different cost levels
  • Complexity of rules leading to confusion and disengagement with a significant asset
  • Constant change of legislation – the regular change of the rules surrounding superannuation makes the future of your wealth uncertain

So which is best?  It depends on your financial position.  There are certainly many tax advantages to using superannuation to accumulate wealth.  After all, that is what the government uses to coax us to forgo our money now to provide for our future retirement income needs.

But these tax advantages must be weighed against the constantly changing and complex rules that surround superannuation.

In any event, superannuation remains a great financial structure to use for accumulating wealth for funding retirement.  But if you are young, you need to consider your wider options as paying extra into superannuation may not necessarily be right for you.

As with all things financial, one rule does not suit all.  It is important that you obtain advice to ensure you are accumulating your wealth in the best possible manner for you.  Advice can also guide the amount you can prudently draw from your assets each year so as to preserve your capital.

The information contained in this article is of a general nature only. It has been written without taking into account your personal or particular financial needs, circumstances, objectives or expected outcomes and should not be construed or misinterpreted as legal, professional or financial advice.  Before acting on any information contained in this article you should consult Hewison Private Wealth or other professional advice.

 

 

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.