Superannuation
Candlefocus EditorSuper funds are the trusts created to manage the savings of individuals for their future and essentially provide a pension at retirement. These funds are regulated by the Australian Prudential Regulation Authority (APRA). Superannuation contributions are taxed at a lower rate and are mandatory in many cases.
The two main types of super funds are defined-benefit funds and accumulation funds. Both types of funds have specific rules and regulations according to the contribution and the circumstances of the contributor.
Defined-benefit plans are somewhat similar to employer-sponsored pension schemes, but typically they are constructed differently and track the market. Defined-benefit funds are not subject to market fluctuations, but they can still be mismanaged and run out of funding.
Accumulation funds, on the other hand, are subject to market fluctuations. These funds consist of investments (stocks, bonds, property,etc) whose value is based on the performance of the underlying asset. The income earnings, as well as the total value of the fund are all affected by market fluctuations.
In Australia, employers are mandated to contribute to the Super of their employees under the Superannuation Guarantee. The Superannuation Guarantee rate is currently 9.5% and is paid in addition to wages and salaries. There are also many other ways that individuals can contribute to their own Super, such as salary sacrifice contributions, spouse contributions, and self-managed Super Funds.
Superannuation funds are an important way for Australians to have a reliable source of income in retirement. It is important for individuals to be aware of their options and the tax implications of each one so that they can make informed decisions with regards to their own Super.