Australia has had a compulsory superannuation system since the late 80’s. Employers are required to contribute an amount equivalent to 9% of gross pay for each employee earning over $450 a month. Most people can choose (nominate) which fund the contributions are paid into.
The contributions are tax deductible to the employer and investment income of the funds is taxed at the lo rate of 15%. At the moment, pensions and retirement benefits paid out to retirees 60 years old or more are tax free.
Self employed Australians have had their own private funds for around 50 years. However, since compulsory pension arrangements were introduced, many more self employed, professional and executive taxpayers have established their own self-managed superannuation fund (SMSF). More recently, even employees with relatively modest retirement nest eggs have moved into SMSFs.
A report recently released by the Australian Taxation Office reveals that “The number of self managed super funds (SMSF) has increased by 27 per cent to 509,000 in five years and have total assets of $506 billion” and that “The SMSF sector accounts for 99 per cent of the total number of superannuation funds and 31 per cent of the $1.6 trillion total super assets in Australia”.
Of course, it is not only the tax breaks that are attractive. A SMSF can be formed with between 1 and 4 members, so they are ideal for family businesses and estate planning. Members of funds can make “binding death benefit nominations” of beneficiaries to receive an interest in their nest egg and these payments will not form part of their estate.
They also allow individuals to take responsibility for planning and managing their own pension fund investment program. There are lots of rules, but for individuals expecting to retire with a $500,000 or higher nest egg, an SMSF may be most attractive.
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