Why are superannuation structures so misunderstood?
A question that is frequently asked of investment advisers and financial planners is: ‘Why would you invest in superannuation when it so often performs badly?’ – and key to the answer to the question is the fact that superannuation is not an investment product of itself. It is however a very effective structure in which to accumulate wealth. As we show below, one of the key advantages is the longevity of the investment term, allowing for recovery from those periods of poor performance.
As a wealth management tool, superannuation structures ‘ticks a lot of boxes’ including the following:
- Contributions can be made tax effectively;
- Earnings on investments made by the superannuation fund are taxed effectively;
- With ‘conditions of release’ constraints, the investment will be long-term for the majority of superannuation account holders;
- A wide range of account types, each with a broad range of acceptable investment asset classes available, ensure that the right account is available for each ‘member’; and
- (assuming a suitable provider has been chosen) Seamless transition from accumulation phase to pension phase minimises tax consequences of the transition – and provides the only tax-free pension structure available.
What Superannuation structures (types of Super funds) are there?
The various superannuation structures under which an investment plan for retirement can accumulate, include:-
- Personal (public offer) superannuation account
- Employee (public offer/ industry) superannuation account
- Corporate superannuation account; and
- Self-managed superannuation account.
Personal superannuation accounts are more convenient for members who are mobile in their careers; who are self-employed; or who want ultimate flexibility, transparency and a tax effective insurance offering. The account is also used by former employees under an employer group. As implied in the name a personal superannuation account is held in the name of an individual and with advice, is able to be invested strategically to meet the wealth accumulation goals and ambitions of the holder (and their family).
Advice on employee superannuation accounts is available through an employer and will normally relate to their (default) super fund. Employees should look for their employer’s default fund to provide that in the event they leave the employer’s service, their account can automatically convert to a personal superannuation account – and retain many of the existing benefits established under the employer group (particularly any insurance protection benefits).
Corporate superannuation accounts are less frequently encountered as the public offer funds and the industry funds become more cost effective for employers to manage their obligations under the superannuation guarantee legislation. More often than not now, employers opt to engage a public offer fund to operate an employer group account. To the extent that they are provided, members should study and understand the benefits offered in the scheme.
Self-managed superannuation accounts are used in a range of circumstances, by accumulators who have significant funds under superannuation, likely to be continuing to make significant contributions into the future and who are prepared to take an active role in the ongoing management of the account and its investment portfolio. There are significant trustee responsibilities – and additional administrative costs involved in SMSFs; but the rewards can be well worthwhile if the circumstances are appropriate.
Are there different types of superannuation contributions?
Contributions to superannuation accounts can be made on either a Concessional or a Non-Concessional basis: as with all good things facilitated by government, there are rules to be observed and limits on how much benefit individuals can take in this regard.
The investment of the funds contributed and accumulated should be made taking into account the financial needs, goals and objectives of the member: the investor risk aversion assessment is an important step in this process, particularly if it is accepted that ‘one size doesn’t fit all’ and the default investment determination may not be the most appropriate in individual circumstances.
Where should I go to for advice on superannuation matters?
Financial Planners with experience and who are well-qualified should be consulted in relation to your superannuation strategy. To optimise the value of your nest egg as you accumulate wealth for retirement, use the Contact Us facility to make an appointment with one of the Continuum Financial Planners Pty Ltd team: or phone our office (on 07-34213456) to arrange a convenient time.