14 misunderstood superannuation terms you should know

BMT team — Wed, 06 May 2020 01:47:55 +0000

Discussions surrounding the need for Australians to set themselves up for a comfortable retirement usually includes a comprehensive savings plan, building an investment portfolio and plenty of superannuation. There’s no doubting that superannuation is complex, with many of us left confused when interpreting our superannuation annual reports. Here we define some common superannuation terms to help you gain further understanding. Contents Account-based pension Absolute return fund Benchmark Concessional contributions First Home Super Saver Scheme (FHSS) Nester Transfer balance cap (TBC) Salary sacrifice Self-managed super fund (SMSF) Growth phase Superannuation Guarantee (SG) Management expense ratio (MER %) Preservation age Yield Account-based pension An account-based pension, also known as an allocated pension, is a regular income stream purchased with superannuation money. Once you retire or satisfy a condition of release, you can use your superannuation to start an income stream of monthly, quarterly, half-yearly or annual payments (subject to minimum drawdown rates set by the Government). You can also withdraw a lump sum. Payments cease when the account balance is exhausted. Visit the MoneySmart website for more information. Absolute return fund An absolute return fund aims to consistently deliver positive returns in both rising and falling markets. They can add diversification benefits when added to a traditional investment portfolio. Although, there are always risks involved in any type of investment and there’s always a chance that an absolute return fund will at times, result in a negative return. Benchmark The meaning of a benchmark can change for its given context. In terms of a superannuation fund, a benchmark usually represents the minimum performance objective for the investment portfolio. For instance, a fund might use the S&P/ASX 200 Accumulation Index to benchmark its performance. Concessional contributions Concessional superannuation contributions are made using before-tax income and are sometimes referred to as deductible contributions. Your Superannuation Guarantee (SG) and additional employer contributions such as salary sacrificed contributions are types of concessional contributions. First Home Super Saver Scheme (FHSS) Introduced by the Australian Government in the 2017-18 Federal Budget, the FHSS allows you to save money for your first home within your Super Fund. This helps first home buyers save faster by benefiting from the concessional tax treatment of superannuation. Nester This is a term commonly used to describe someone who is accumulating their wealth with a goal to build for their future. In most cases, a nester is also investing in ways outside of their super to avoid fees and experience long-term growth. Transfer balance cap (TBC) This is the limit of the total amount of your superannuation that can be transferred into the retirement phase. This transfer balance cap starts at $1.6 million and is indexed periodically in $100,000 increments. Your indexation entitlement will depend on the amount of your available ‘cap’ space. While you have remaining cap space, multiple transfers are allowed throughout the retirement phase. Salary sacrifice Sometimes called salary packaging or total remuneration packaging, salary sacrifice refers to using your pre-tax salary to buy goods or services that you would normally buy with your after-tax pay. This is an arrangement between employee and employer, and there are three categories of benefits that salary sacrificing can be used for, including fringe benefits, exempt benefits and superannuation. Salary sacrificing into superannuation is a tax-efficient strategy because sacrificed contributions are taxed at a rate of 15 per cent if your gross income is under $250,000, or at 30 per cent if your gross income is greater than $250,000. This also allows sacrificed contributions to be utilised more effectively when accumulating savings in the FHSS scheme. Self-managed super fund (SMSF) An SMSF is a type of private super fund that you can manage yourself. SMSFs are regulated by the ATO and can have between one to four members, all of which must be trustees of the fund and involved in all decisions. We recently explored how you can buy an investment property through an SMSF. Growth phase A superannuation interest is in the growth phase before the member has reached any conditions for release. The growth phase doesn’t stop if the member receives some of their superannuation through a payment that can occur for several reasons, such as financial hardship. Superannuation Guarantee (SG) The SG is the minimum an employer must pay in superannuation for each of their employees. An employee’s earnings will impact how much their SG is as it works on a percentage basis. Currently the SG is 9.5 per cent of an employee’s ordinary time earnings. Management expense ratio (MER %) There are a number of fees associated with all types of managed funds, including superannuation funds. The management expense ratio (MER) is the portion of your investments you must pay to the investment manager. Preservation age This is the age you must meet to be able to access your super. If you reach your preservation age and don’t permanently retire, you can still access part of your superannuation through a transition to retirement pension. Yield Your yield is the return of an investment as a percentage. Yield can be used for any type of investment including property, shares and superannuation. Superannuation is a complex area with many aspects to consider when ensuring your strategy meets your needs. We recommend anyone seeking advice on superannuation to consult with a licensed professional.

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Key things to know and consider before setting up an SMSF

Chan Naylor Team — Thu, 22 Dec 2016 01:35:26 +0000

Rather than pool their retirement funds with thousands of others and trust superannuation companies to invest their money, some people prefer to take their future wealth creation into their own hands and set up a Self-managed Super Fund (SMSF). This can bring some great benefits, but also comes with a lot of responsibility, and requires considerable skill to ensure it works to the advantage of members. Here are few important things to know about SMSFs, and what to consider before you decide to set up your own fund. Six basic things to know about SMSFs An SMSF is essentially a legal tax structure that is regulated by the ATO. SMSFs can have up to four members, who all act as trustees or directors. The funds in an SMSF must be used only for the purposes of future retirement. In an SMSF, members have the option of deciding where to invest their funds, which may include shares, property, or even collectibles such as artwork, antiques or jewellery. The members are entirely liable for all the decisions made in an SMSF – even if they outsource some of the functions or obtain professional advice. SMSFs are subject to annual auditsby a qualified SMSF auditor to check for compliance. Some of the benefits of an SMSF include access to a wide range of investments, being in control of your own retirement funds and the ability to borrow from a lender to invest in property – although this last one comes with some pretty stringent rules. Four considerations for setting up a super plan 1/ Funds: For an SMSF to be viable, it needs to have a considerable sum for investment, although it can be started with a small amount and added to as members roll over their funds into it. SMSFs need to cover numerous costs, and it’s important to have some liquid assets in place to meet these. 2/ Time and skills: Administering an SMSF requires considerable time, such as for researching investment options and making decisions on behalf of members. Skills in managing finances are also required, as well as a full understanding of super tax laws and how superannuation funds work. 3/ Retirement goals: Before setting up, it’s important to have goals in place for retirement as these will help to guide and direct your actions. 4/ Investment rules: Trustees need to understand comply with investment rules, such as recognising that the fund’s assets must not provide any members or their related parties with a current benefit. This means for example that if your fund invests in property or artworks, neither you as a member or your related parties can use these assets for private purposes. There’s certainly a lot to think about when it comes to establishing your own super fund. The good news is you don’t have to go it all alone – there is always the option of employing a professional accounting firm that has in-house licensed financial advisers, to assist you in managing your investments. To find out more about SMSFs, or for independent financial advice, get in contact with our SMSF experts at Chan & Naylor Wealth Planning (Australia-wide service) – go to www.chan-naylor.com.au/wealth-planning. Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer. Article provided by Chan & Naylor originally published online at www.chan-naylor.com.au/key-things-know-consider-setting-smsf/

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14 misunderstood superannuation terms you should know

Key things to know and consider before setting up an SMSF