There was a time, long ago, when saving was ingrained into the Australian psyche. Who can remember these passbooks which formed part of a compulsory savings regime for schoolkids?
Over time, saving fell out of fashion while use of credit cards became the norm.
When people retired and left the workforce they relied heavily on the old age pension to get them through until they shuffled off this mortal coil. With this drain on public finances, government decided that as voluntary saving could never be popularised again, it would be made compulsory.
And so Australia’s superannuation system (“super”) was introduced in 1992 with mandatory employer and employee contributions building a nest egg to be utilised at retirement and so reduce pressure on the federal pension system.
Although the superannuation system has been heavily tinkered with ever since by successive governments, and financial institutions have charged outrageous fees to “manage” super funds, the arrangement has been largely successful in achieving its purpose, with about $2 trillion in superannuation assets at the end of 2014.
There are two rather attractive aspects of superannuation which do not get exploited to the extent they should:
1. At Age 60, Superannuation Withdrawals are Tax Free
At some stage the government figured that sixty was a good age to let people loose on their superannuation savings, and at some other time, decided that the withdrawal of funds would be tax free. This latter apparent generosity was not really all that benevolent considering multiple taxes had most likely already been paid on these deposits.
With governments all around the world revising retirement ages upwards due to longer life expectancy, it is likely that one day the superannuation access may rise from age 60. But for now, even if you are 60 and still working it probably makes sense to start a pension phase and get hold of your money, tax free, while you can.
2. Set up Your Own Self Managed Superannuation Fund
The growth in Self Managed Superannuation Funds (SMSFs) in recent years has been slowing, possibly due to the perceived complexities and cost in setting up, and then the ongoing governance requirements.
These matters can be challenging at first glance but if you are prepared to expend a bit of effort and take ownership of your super, you will be amazed at how easy and cheap it is to set up and run your own SMSF.
In my case, I did more research than I probably needed as I had been locked into a financial advisor and an accountant for over twenty years. To extricate my affairs from their vice-like (no pun intended) fee driven grasp was more demanding than getting my SMSF underway.
Three Simple Steps to Set Up Your Own SMSF
Firstly, visit the excellent SMSF training material prepared by the Australian Tax Office (ATO). The ATO is responsible for the proper conduct and compliance of SMSFs so you need to work with them. Consider the ATO like a strict but generous schoolmaster – stay on the right side and they are very helpful.
Secondly, give thought and write down all matters you have considered for your SMSF, including structure, investment strategy, funds allocation and the like. Do this as you work through the ATO material above.
Thirdly, and by now you will have quite a bit of knowledge without having spent a cent, visit Esuperfund. This is where the rubber hits the road.
Esuperfund has successfully done what no other superannuation-related business has been able or prepared to do – build a completely online business to handle SMSF set up and management.
As well as the simple to follow steps provided by Esuperfund, they have extra training material and are very responsive to queries. They handle all compliance matters (including the compulsory annual audit), plus rollovers, pensions starts including transition to retirement – the whole works really.
And all this for a modest flat annual fee which is currently $699 after the free first year. There is none of the taking a percentage of your fund balance like the vultures that comprise most of the superannuation market.
There was never a better time (or way) to establish your Self Managed Superannuation Fund – get to it!