Ask the Personal Superannuation Adviser

[Shounak]

I've received PS146 compliance and have learnt a fair bit about the current super system and will attempt to answer most questions.

I also know the rules regarding giving advice. Therefore I have to stress that I'm only giving general advice (pursuant to s766B(4) of the Corps Act). I am not considering your personal circumstances, financial aims, needs or objectives. I am just giving advice which is not designed to influence your decision making and you should check with your financial advisor/planner before making any decisions.

Anyone got any questions?

[bradcad]

Righto-

What is the cutoff limit for the government to match non compulsary contributions? And I hear that rolling sever supers into one incurrs fees to the point that it virtually wipes out small funds. Is this true?

[joshoVT]

Also interested in how long until the government must match non-compulsory contributions, but is there a limit to which they match, say a couple of grand?

[jules]

do you recommend making supplementary contributions to super, in general?

i'm on 30% tax rate so at 15%, super is a big tax saving and that's hard to beat with an investment return, which you get anyway from investing the super.

obviously you don't get it back until you retire which is the big drawback but i am thinking about doing it.

[Shounak]

Righto-

What is the cutoff limit for the government to match non compulsary contributions? And I hear that rolling sever supers into one incurrs fees to the point that it virtually wipes out small funds. Is this true?

The government will not co-contribute more than $1500 per financial year. Based on you meeting the lowest threshold criterion and contributing $1000.

If you earn between $28,000 and $58,000, the government will contribute less than the $1500. Best to go to the ATO website to find out exactly how much you'll get as a co-contribution.

Best investment ever. Where else can you get a 150% return, which by the time you access, will most likely grow more than 100 times.

Other question. If you have seven funds and roll them all into one, you're going to save yourself a poo load in fee's. Each fund is probably charging you it's own management costs, insurance premiums and is investing your money how they see fit. Rolling all yoru supers into one fund makes a huge deal of sense, but it requires a bit of thought.

Compare the funds returns, insurance costs/benefits and management fee's before choosing one.

[Shounak]

do you recommend making supplementary contributions to super, in general?

i'm on 30% tax rate so at 15%, super is a big tax saving and that's hard to beat with an investment return, which you get anyway from investing the super.

obviously you don't get it back until you retire which is the big drawback but i am thinking about doing it.

Depends on how badly you need the money now. By salary sacrificing you will reduce your total tax paid, to a point. Your super contributions will always be taxed at 15% so it would make sense to contribute upto the point where your marginal tax rate becomes 15%.

But not everyone can afford to contribute that amount of money.

Super is the most tax effective investment vehicle there is. You are concesionally taxed on everything, from income to capital gains and now withdrawal.

I would personally contribute a sensible amount. You'll be thankful by the time you're 60..

[Shounak]

Also interested in how long until the government must match non-compulsory contributions, but is there a limit to which they match, say a couple of grand?

I'm not sure how long the co-contribution scheme will go on for. Probably until the the government is happy with the ability of superannuation funds in Australia to provide Australians with adequate retirement income, without too much dependence on the pension system.

The government will pay upto a maximum of $1500.

In 05-06, the government contributed upto $3000 for every $1000 invested. That's unbeatable for a riskless return.

[jules]

Super is the most tax effective investment vehicle there is. You are concesionally taxed on everything, from income to capital gains and now withdrawal.

I would personally contribute a sensible amount. You'll be thankful by the time you're 60..

thanks.. that's useful advice.

also can you confirm there's no capital gains on super investments, just the original 15%? or am i dreaming?

[Shounak]

thanks.. that's useful advice.

also can you confirm there's no capital gains on super investments, just the original 15%? or am i dreaming?

I'm pretty sure CGT is 10% on complying superannuation funds. I'm at my gf's house at the moment, so I'll confirm this one later.

[bradcad]

IS super really riskless?

[Shounak]

IS super really riskless?

It's as riskless as you want it to be. You can have all your money invested in Commonwealth Government Bonds and you'll earn the normal interest rate til you're 60. There will be no risk, but the risk of interest rates changing over time.

However if you invest in shares, there's more volatility involved and it's not recommended unless your time frame is more than 7 years. So your value will dart about a bit, but it will grow a heap more.

Just to put it in perspective, the Australian stock market has grown at an average of 12.5% in the last 100 years, on average. This is taking the great depression, world wars and melt down in the early 90's into account. Nothing can beat the stock market for returns and it's almost riskless if you put your money into the whole index and leave it there.

But there are varying levels of risk and return. The more return you want on your investment the more risk and volatility you must be willing to take.

[Rufus®]

How does salary sacrifice work? the way i read it is, there is give and take between employer and employee. so if a company is paying 17% super, then what ever you contribute as salary sacrifice comes out of the 17% first? if that makes sense?

also any idea how you can salary sacrifice child care? It's says you can do it on the ATO website, Salary sacrifice but doesn't go into detail, and our HR lady is a muppet, doesn't have a clue!!!

Cheers

[Shounak]

How does salary sacrifice work? the way i read it is, there is give and take between employer and employee. so if a company is paying 17% super, then what ever you contribute as salary sacrifice comes out of the 17% first? if that makes sense?

also any idea how you can salary sacrifice child care? It's says you can do it on the ATO website, Salary sacrifice but doesn't go into detail, and our HR lady is a muppet, doesn't have a clue!!!

Cheers

Salary sacrifice is where non-compulsory super contributions are deducted from your gross salary, reducing your taxable income.

Ok most companies contribute at least 9% super, so if you're earning $100,000 pa gross, your employer is throwing in an extra $9,000 pa.

According to Australian Marginal tax rates, if you were earning $100k pa, every dollar you earn between $75,000 and $150,000 will be taxed at 40%.

If you salary sacrifice $25,000 it will reduce your net taxable income to $75,000 and you will not be paying tax at 40%.

So instead of your additional $25,000 gross income being taxed at 40%, it will only be taxed at 15%.

So you have saved paying $6,250 in taxes and that money will be growing in your superannuation. Cash in hand you're only losing $15,000 by doing this, but your super has grown by $21,250..

Only certain items can be salary sacrificed. I know in health care and non-profit organisations you can Salary Sacrifice about $15,000 onto a charge card. But I'm pretty sure you're mostly limited to a laptop, car and a few other things in normal jobs.

Best to talk to a tax accountant about that or google it.