Countless Australians today are signing up for super accounts to help them take advantage of outstanding savings for retirement. In fact, more than 15.5 million Australians currently have a super fund!
With so many people buying into the super system, you’re probably wondering just why this is such a popular choice. Well, the truth is, there are tons of benefits to signing up for a superannuation fund.
If you’re interested in learning more about what super savings you can take advantage of and why getting a super is such a good move, keep reading. Here are ten reasons why getting a super is the right move.
1. You Can Lower Your Income Taxes
Now that we’ve got the definitions out of the way, let’s talk about a few superannuation tips and benefits. The first of these benefits is that you can actually lower your income taxes!
There are a few different ways that you can do so. The option you choose will depend on your unique situation and what works best with your personal finances.
Salary Sacrifice Plans
When you set up a salary-sacrifice plan with your workplace, you’re able to trade the usual income tax rate for the super contributions tax rate of 15%. Considering marginal income tax rates can be as high as 47%, you’d be saving some serious money!
Not all employers are willing to get on board with this plan, however. Be sure to check with your employer to see if this is an option before banking on this type of tax savings.
Personal Contribution Plans
Another way that you can save some taxes is by making your own personal contributions to your super. When you do so, you’re able to claim a tax deduction.
In the last few years, the government instituted a law stating that anyone who makes voluntary contributions is eligible for tax breaks if they are under the age of 75 and do not exceed the annual concessional contributions cap.
The annual before-tax contributions cap is currently $27,500. That’s $2,500 higher than it was prior to 2021, meaning that now is a great time to take advantage of this tax advantage.
These aren’t the only two ways that you can save on taxes using your super. Another way to take advantage of tax savings is if you have fewer than $500,000 in your superannuation account.
As long as you don’t use the full amount of your before-tax contributions cap in a year, you can use the unused balance in the next year. In fact, you’re able to roll over leftover before-tax contributions for up to five years!
The result is that you could potentially claim even more tax savings in the following years. All you have to do is make larger contributions in the coming years so that you can really maximize your tax savings.
2. You Can Control Where Your Money Goes
It’s not uncommon for family members to challenge death benefit payments when they believe that they were distributed incorrectly. To avoid this issue, many people deposit their money into a binding death benefit nomination so that when they die, their intended beneficiaries receive the money.
When you sign up for a binding death benefit nomination, or BDBN, you make sure that your money is paid out as you want. And, you know that it’s extremely difficult for beneficiaries to challenge your wishes.
Better yet, there are some BDBNs that are offered with non-lapsing clauses. This means you won’t need to regularly renew your death benefit nomination, making it easier than ever to ensure your money goes where you want.
3. You Can Pay Fewer Taxes on Returns
Many Australians worry about having to pay huge taxes on investment returns. However, super funds come with a concessional tax treatment that can save you big bucks if you earn a large income.
That’s because while any income that you receive by investing in your own name is taxed at the normal rate, all income from your super is taxed at only 15%. Plus, capital gains are taxed at 10% as long as you’ve owned the assets for a minimum of 12-months.
4. You Get Access to Cheaper Insurance Coverage
Many super funds offer optional insurance policies for their members. And, since they’re purchasing plans in bulk, they’re able to secure a cheaper rate with insurance companies.
As such, when you accept insurance from your publicly offered superannuation fund, you’re able to get lower-cost insurance than you would elsewhere. That can mean huge savings throughout the year!
Plus, when you pay for insurance as part of your super fund, it’s far easier to manage your budget. The premiums automatically get deducted from your account, meaning you don’t have to scrounge up extra cash for insurance payments.
Make sure you factor these payments into your retirement savings, however. Each payment is directly withdrawn from your retirement income, so you’ll want to make sure you are aware of how much you’ll have leftover after insurance.
5. You’re Protected Against Bankruptcy
We’re all at risk of bankruptcy if we can’t make payments on our debt. However, when you keep your retirement income in a super fund, you’re protecting yourself against bankruptcy.
The reason for this is that super funds are protected from creditors in the event that you declare bankruptcy. However, make sure that you’re aware that any payments you have already withdrawn from your superannuation fund are still liable for collection.
6. You Get Access to Government Funding
Another amazing benefit of a super account is that you get access to special government funding opportunities. There are several ways that you can take advantage of this money.
The first way is by making non-concessional super account contributions. When you make after-tax contributions in this way, the federal government may give you a top-up contribution to your account.
The amount of money you earn will impact how much cash is paid into your super account. However, all the money you receive from the government is tax-free and is given out to help you supplement any income you’ll have during retirement.
Remember, in order to take advantage of this type of contribution, you’ll need to have your tax ID on your super account. That way the government will have access to your earnings and income data so that you can qualify for the co-contribution.
Co-contributions aren’t the only way that the government provides bonus funding to those with a super account. Another type of funding offered is called the Low Income Superannuation Tax Offset, or LISTO for short.
LISTO was previously known as the Low Income Superannuation Contribution. If you’re already familiar with that bonus, then you know this is a great way to score some additional cash.
LISTO is available to anyone who is eligible and earns up to an amount of $37,000 annually. If you meet these requirements, you can receive $500 of government money placed directly into your superannuation account.
7. You Can Enjoy Tax-free Income Once You Retire
The way that an Islamic super works is by providing you access to your super fund lump sum or pension tax-free once you reach age 60 or retire. However, there are a few additional benefits that allow you to enjoy completely tax-free income once you withdraw your super fund.
There are two ways that this is possible. The first is in receiving regular benefit payments. These payments are tax-free and are paid out to members as an account-based pension check.
Another way you can enjoy tax-free income on your super is because you are not required to pay tax on capital gains on your investment assets or on your investment earnings that support your retirement pension. That means that you’ll be able to enjoy tax-free living after you stop working!
It’s important to remember, however, that the Transfer Balance Cap is $1.7 million dollars as of July first, 2021. That means that you are limited in the amount of money you can remove from your super and place it into a tax-free retirement account.
While this might seem limiting, it’s good to know that the previous lifetime limit was set at $1.6 million. That means that the government is working to make it easier for you to receive super funding tax-free during retirement.
It’s also important to know that if you get your retirement pension from an untaxed super, you may still be required to pay taxes. These accounts are typically public service super funds.
8. You Can Continue Your Insurance Coverage
Many Australians are under the misconception that getting a super means they aren’t able to continue their insurance coverage. However, this isn’t true at all.
The majority of big superannuation accounts will let you keep your current insurance. This is even true if you end up switching jobs, preventing your employer from not paying your super.
And, it means that even if you end up quitting or leaving your job entirely, you’ll still be able to get insurance coverage that you’re comfortable with.
Better yet, most insurers will allow you to continue your insurance policy at an individual cost if you choose to leave your super fund. That means that you won’t lose or reduce your coverage just because you choose to leave your super.
One pro super tip for anyone who does switch jobs is to make sure that you’re not covered under two policies for the same issue. If you are, you won’t necessarily receive two insurance payouts and could be losing money on insurance premiums and monthly payments.
9. You Can Invest in Bigger Assets
When you sign up for a super account, you’re actually giving yourself access to investing in even larger funds than you would have considered initially. That could allow you to purchase bigger assets and take advantage of unique investment opportunities!
The reason for this is that when you invest in a superannuation account you pool your retirements with other members. As a result, there’s a larger pot of money on the table for investments.
As a single investor, you might not have the funds necessary for investing in big-ticket stocks. However, with the combined resources of you and the other members, you’re able to put your money into higher investments.
For example, with smaller sums of money, you won’t be able to invest in investments such as office towers, corporate bonds, or a motorway. Those types of investments can see some serious returns, making them an outstanding option!
Get the Most Out of Your Super
Signing up for a super account is a great way to save some money and invest in your future. It’s also an excellent opportunity for you to cut down on current expenses so that you can relax and enjoy your retirement.
These ten benefits of a superannuation fund are just one of the many reasons why so many Australians are opening this type of investment account. Doing so has allowed them to have access to money that can be a life-changer in their old age.
Are you ready to take advantage of these benefits and open your own superannuation account? Get in touch with us and we’ll help you with every aspect of your super!
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Ethical Finance and Innovation
Dr. Sayd Farook is the Executive Director of Crescent Foundation. He is Group Chief Operating Officer of Crescent Wealth and Managing Director of Crescent Finance. He previously served as Advisor to the Executive Office of the Vice President and Prime Minister of the UAE and Ruler of Dubai. In this capacity, he envisioned and executed strategic / transformation initiatives for Dubai and the UAE. Prior to that, he was the Global Head Islamic Capital Markets at Thomson Reuters, where he advised and served large corporates, multilaterals and governments in the Middle East, North Africa and South East Asia.