By Graeme Colley

This article has also been published in the Switzer Super Report

Ask yourself, if you didn’t have super, what will you have left for retirement?

Many people see superannuation as something they’ll get around to nearer retirement, whenever that happens. However, thinking about how much you will need is something for now and not leaving it until later. A small amount saved in super now plus the effect of compound earnings will grow to a much larger amount when retirement comes around. The later you leave it, the more of your personal savings will be required to reach your retirement goals.

While super may seem to be changing continually don’t forget the rules for personal and business tax change just as regularly. Also, the superannuation rules are updated and modified regularly not just in Australia but right throughout the world. The changes are there to adapt to new and challenging economic conditions, longer life expectancies and so on.

No matter what the changes to super are, it’s still ahead of investing the same amount in your own name. Think about the tax you would pay personally on bank interest or company shares and compare it to the low rate of tax paid on the income earned on the balance in your super account. In addition, any tax deductible contributions made to super are taxed in the fund at 15% and any lump sums and pensions you receive from the fund are tax free once you reach 60.

Let’s look at Dean who is deciding whether to put some money aside in superannuation or invest the same amount in his own name. If he was to invest in superannuation any earnings on his balance in the fund would be taxed at 15%. However, if he was to invest the same amount in his own name the earnings would be taxed at his personal tax rate plus Medicare. If Dean’s personal tax rate was 37% and Medicare is 2%, Dean would pay 39% of his investment earnings in tax. Therefore, by making a contribution to superannuation any investment earnings would be 24% better off than if he had invested the same amount in his own name.

This year will see changes to super from 1 July and may have left many feeling uncertain. However, for the vast majority of superannuation fund members the changes will have no or little effect on whether contributions can be made to super and how earnings will be taxed in the fund. Here’s some of the things that will stay the same:

• Superannuation contributions made by employers and self-employed people will continue to be tax deductible. In addition, the super rules will change from July 2017 to allow everyone access to tax deductions for superannuation contributions.
• Non-deductible contributions can be made to superannuation for anyone with a superannuation balance of less than $1.6 million.
• The maximum tax rate is 15% on earnings and there is no tax on earnings on the first $1.6 million in retirement phase.
• Investments that are owned by the fund for more than 12 months are eligible for a 1/3rd CGT discount.
• The fund is able to use franking credits of up to 30% on company dividends which can offset the tax payable by the fund on income and taxable contributions.

If you have a self-managed superannuation fund the current advantages will continue and include:

• Selection of specific investments, some unique to SMSFs
• A wide range of suitable insurance products and cover levels
• Purchasing business premises and lease them to related parties
• Flexibility in using pension strategies
• Ability to sell investments quickly to adjust to changing market conditions
• Take advantage of boutique investment opportunities
• Potential to borrow to purchase investments

The advantages of superannuation can never be underestimated as it continues to provide significant tax benefits to encourage people to save for their retirement. Despite the changes this year super continues to provide a range of unique opportunities. After all super is compulsory for employees, it’s tax effective and it will help you survive when you are retired.