Published in BRW, page 45, Tuesday 22 July 2010.
Volatility in the dollar and local sharemarkets has played havoc with superannuation balances over the past couple of years, yet a smart super plan still forms an essential part of a business owner’s retirement strategy.
The global financial crisis has led local business owners to consider other types of investment to plan for their future. Over the past year-and-a-half, many of our clients across a variety of industries are showing a strong preference for alternate investment opportunities such as property, and are investing fewer voluntary contributions into their super funds.
However, a smart superannuation strategy tailored to the individual and his or her current and projected business situation will pay dividends in the long run.
The importance of a healthy superannuation fund has also been recognised by the federal government recently, with the announcement in April that it will gradually increase compulsory employer superannuation contributions from 9 per cent to 12 per cent between 2013 and 2019 (this is the plan, although it is not yet enshrined in law).
Business owners often overlook the fact that when an individual makes concessional contributions to a superannuation fund, provided the tax rate on the income against which they claim the deduction is more than 15 per cent, there is effectively a greater amount of capital to invest.
Because of these tax benefits, the resulting amount is much higher. For example, over a 10-year period of investing $10,000 of income in superannuation each year as a concessional (tax deductible) contribution, versus investing in a tax environment of 39.5 per cent outside of superannuation, assuming 4 per cent income and 5 per cent capital growth, the difference is $136,042 within superannuation as opposed to $91,593 outside of superannuation.
Not to mention that the earnings in a superannuation fund are tax free when you begin to draw on them once you’re old enough to do so.
Claims that superannuation returns are poor compared with other assets are rubbish. Superannuation is an easy target because the returns are evident for all to see.
In truth, the performance of assets outside of super often follows the same path since the majority of passive assets are invested in the same three classes that individual investors favour: cash, property and shares.
This applies to most other investments as well, although an individual’s superannuation fund requires active involvement by the investor rather than it being ignored and treated as a “set and forget” strategy.
For the retiring type on the BRW website.