Money
Issue No. 17 - June/July 2004
Being your own Super Hero
by Peter Coleman
Superannuation is the Federal Government’s preferred savings vehicle for working Australians. There are significant tax incentives to encourage contributions to super.
For example, for employees 50 years of age and over an employer contribution of up to $91,149 can be claimed as an income tax deduction annually. For the self employed the first $5,000 is tax deductible and then 75% of the balance.
This means, to qualify for the full $91,149 tax deduction a self-employed person must make a contribution of $119,865.
Life insurance premiums are also tax deductible through a super fund. In addition, income within the super fund is taxed at a concessional rate of 15% and capital gains taxed at 10% where the asset is held for more than 12 months. When a fund is converted to an allocated pension the tax rate reduces to zero.
What happens to super money
For most individuals contributions go to a retail or industry fund. The investments from these funds are pooled and managed by investment managers in large unitised trusts. Generally there is a choice of broad investment options offering various asset allocations from the conservative capital stable option to balanced and more aggressive growth funds.
These investment managers are typically judged by their short-term performance versus a benchmark (typically the All Ordinaries Index). This can lead to investment managers embracing a ‘herd mentality’ and being satisfied with a negative return as long as it beats the market index. However there is an alternative, Self Managed Super Funds (SMSF).
Under a SMSF you can design an investment strategy to suit your individual requirements. Investments can include cash, fixed interest, ASX listed companies, unlisted managed funds and property. You also have control over the timing of purchases and sales of individual securities.
Consequently when investment markets are too expensive, funds can be kept in cash until op...
