Super; it's just a set of rules

 

Super is just a set of rules, not an investment. The super fund trustee runs the rule book. The rules are (a) who can contribute, (b) who can make withdrawals, (c) what we can invest in and (d) how much tax we pay on earnings and capital gains. For most of us, the low (concessional) tax rate on super investment earnings is the incentive to use the super system, rather than investing in our own names.

 

Super’s investment performance isn’t at fund level, it’s at account/member level. The investment options held within our accounts determine the performance. Choose wisely. A fund advertising their returns refers to their default option for new members, not what everyone made.

 

Every fund allows members to choose their investment style from conservative to middle of the road to more aggressive. Like investments we can hold in our own names, defensive assets (cash and fixed income) to more growth orientated assets (shares and property), super funds offer a range of investment options. Most people select a diversified mix of defensive and growth assets that match their tolerance to investment risk. Some super funds offer alternative options like direct property, precious metals, crypto and collectibles; they’re called self-managed funds, where you get to be the trustee responsible for following the rule book.

 

Super is designed for us to save for retirement in a low tax environment before converting our savings into an income stream (pension) that pays us tax-free ongoing income in retirement. We usually create a pension when we can access our super. This includes retiring or leaving a job after turning 60, or by turning 65. The investment earnings are tax-free, like the regular pension payments sent to our bank accounts.

 

So, over our lifetimes, we go from paying full tax on our personal investments to paying less tax in super to paying no tax in retirement. It’s quite an incentive to use the super system. And then, once we’ve been through all these phases, we get to talk about the Age Pension system.

 

The End