Some people believe superannuation is a type of investment asset, like shares or bonds. In actual fact, super is simply a structure within which almost any type of asset class can exist. This structure has tax concessions and rules designed to help you save for retirement.
According to adviser Peter Stewart, Benchmark Consultants, outside super there are almost endless direct investment opportunities. These include real property, term deposits, direct shares and managed funds. These investments can also be held within a super fund, where the tax treatment of any earnings is different.
"Low tax on contributions and investment earnings helps you to save more for your retirement, compared with investing outside super where you're taxed at your marginal tax rate."
Benchmark Consultants, Australian Financial Services
Russell SuperSolution invests in Pooled Superannuation Trusts (a special type of managed fund for superannuation). This is one of the most common structures for large superannuation plans. Managed funds bundle together a selection of assets into one place and track the overall investment performance of the whole bundle.
Professional investment managers choose the underlying investments and pool the contributions of all investors together to share the costs and benefits. Managed funds generally allow access to a much wider selection of investments than would be readily available to an individual investor.
Low tax on contributions and investment earnings helps you to save more for your retirement, compared with investing outside super where youíre taxed at your marginal tax rate. And, if you access your super after your 60th birthday, itís tax free.
Contributions you make through salary sacrifice are taxed at 15% on the way in to super, which is significantly lower than many peopleís income tax rate, so there is more left over to invest. You pay income tax on after-tax contributions, but they attract co-contributions from the Government if your total income is under $61,920.
Being in a managed fund structure like Russell SuperSolution also means you have expert portfolio managers selecting the investments Ė so you donít need to worry about choosing the investments for yourself. You just pick the portfolio that best suits your needs and they do the rest.
When considering making contributions to super, itís important to remember that superannuation is preserved. This means that unless there are special circumstances, you will not be able to access funds from your super account until after you reach your preservation age
So if youíre going to need your savings before you retire, consider saving an amount outside super as well.
Remember Ė there are a lot of benefits to investing in super but the purpose of superannuation is to save for your retirement. Itís important to consider your broader investment strategy when making decisions on how to invest.