Superannuation – Test case to stop paying?

[mattlaw]

I am not sure how you are structured as a self employed person e.g. partnership or sole trader. Self employed people dont have to put money into super. Only if you are entered into a contract with and employer and you bill them for labour do they have to pay super for you. I am not sure why you are contributing to super.

 

[Krusty the Klown]

I am not sure how you are structured as a self employed person e.g. partnership or sole trader. Self employed people dont have to put money into super. Only if you are entered into a contract with and employer and you bill them for labour do they have to pay super for you. I am not sure why you are contributing to super.

This is right Stocks, being self employed, you are not obligated to contribute to super if you don't want to.

You will lose a tax deduction though.

Even if you contribute to cash in super and you only get 2% return, the tax deduction alone would make it worth while to continue.

There is a product called a Retirement Savings Account, a savings account which is compliant with Super laws. It pays an interest rate and has no costs. This could be an alternative for you.

 

[Prospector]

Yes I think you are right,



Sure it is the employer, yet for self-employed contractors like me I am paying the 9% from my daily rate. Sure there is an element of this that I try to build into my rate, yet that rate can go up or down - usually Clients try to push it down, so I am the one stuck with "losing" the current 9%.

I know what your saying about starting a DIY fund if I dont like it, yet my question is why should I have to? I know there are all the maternal/motherhood statements for why I 'must' have one, yet could I test this and win? I know the answer, yet I want to understand why I cant win.

But self employed people dont have to pay the 9% unless you are paying yourself as a PAYE. Ahh, Krusty and Mattlaw beat me to it. Guess it shows we know our stuff!

 

[mattlaw]

You are obviously on the top tax bracket as well so you are saving 30% tax on each dollar you put into super.

 

[Julia]

Well, I have just received my statement for last financial yr and the wiz-kids over at my super fund managed to lose me a whopping $30k. All I can say is I contributed about the same, if not a little more, so all I did was burn $30k. I could have put it in the fireplace for all it was worth. So glad I didn’t contribute more than I have to.

So, I ask this question, why should I pay for something that obviously doesn’t work? Super returns irrespective of the amount paid into, or at balance about 4% a yr. The so-called compounded 9% and 13% amounts many bandit around are false and misleading, if not outright lies.

Your comments here show a misunderstanding of the whole concept of Superannuation.

Super is simply a tax effective vehicle in which to hold investments.
It's entirely up to you how the investment is structured, i.e. you can have it all in cash as Prospector has explained, all in growth shares, all in property, or any combination of these.

And if you don't like the options offered on the above by your Super Fund, then you can - as you have already noted - start your own.

Organisations like ESuper do a set up and first year's return and audit for around $500 I think. Then you can absolutely take charge of your own returns.

To say it's a con because your fund has gone backwards this year is pretty silly. If you are invested in a balanced or growth option, then of course it has gone backwards if you didn't request a move to cash when the rot set in.

So don't blame your Super Fund or the whole general concept of compulsory super because you have failed to actively and appropriately manage it.

 

[So_Cynical]

To say it's a con because your fund has gone backwards this year is pretty silly. If you are invested in a balanced or growth option, then of course it has gone backwards if you didn't request a move to cash when the rot set in.

So don't blame your Super Fund or the whole general concept of compulsory super because you have failed to actively and appropriately manage it.

I moved half my super into the "Australian shares" option in late March...bet there's no way that...that half of my super grew by 25+% no way known.

And ill tell ya what, im gona be asking why the hell not....will report back when i know for sure.

 

[BradK]

Lots of people lost money this year. The fact that you lost the same amount as you contributed suggests must be frustrating.

Agree with ASXG that the rules will be changed by the time of my retirement, so I am basically investing in other areas.

Brad

 

[gooner]

Who said it doesn't work? I say it just doesn't work for you. I think your misgivings about Super are misplaced. IMO it has to be one of the best systems in the world.

I think The Australian government is one of the more progressive on the planet in this area. They give you, among other things, the freedom to choose. You can choose to contribute more, in tax effective ways, and you can choose how it is invested. It's up to you, if you want to be a better investor, the opportunity is right there.

And seriously, can it (Super) be any better? Low tax on the way in, low tax on gains and income within the fund, no tax on the way out. The only way it could be better would be via investing in a low tax jurisdiction eg. Isle of Mann. And even then most people would be contributing with post-tax earned income, payed at the top marginal rate.

You are obviously on the top tax bracket as well so you are saving 30% tax on each dollar you put into super.

Your comments here show a misunderstanding of the whole concept of Superannuation.

Super is simply a tax effective vehicle in which to hold investments.
It's entirely up to you how the investment is structured, i.e. you can have it all in cash as Prospector has explained, all in growth shares, all in property, or any combination of these.

To say it's a con because your fund has gone backwards this year is pretty silly. If you are invested in a balanced or growth option, then of course it has gone backwards if you didn't request a move to cash when the rot set in.

So don't blame your Super Fund or the whole general concept of compulsory super because you have failed to actively and appropriately manage it.

Lots of very good, factual, informative posts there. Super is YOUR money and apart from spending it pre 60 (or 55 for the oldies), you can pretty much do what you want. Low tax, blah, blah, blah. I salary sacrificed into mine saving loads of tax. Super also ensured that Australian as a nation had a decent savings rates as before all the money used to be blown on crap or used to pump up the property bubble.

I love you, super.

I moved half my super into the "Australian shares" option in late March...bet there's no way that...that half of my super grew by 25+% no way known.

And ill tell ya what, im gona be asking why the hell not....will report back when i know for sure.

So_cynical

Suspect you deserve your nic. You will probably be surprised how well it is has done in the last few months. I was in a defined benefit scheme when I retrenched last year - put it in an Australian shares fund at December lows. Went down a bit early in the year, but now well up.. Should be enough for my retirement without putting any more in. Am 46 now.

 

[stocksontheblock]

If you are invested in a balanced or growth option, then of course it has gone backwards if you didn't request a move to cash when the rot set in.

So don't blame your Super Fund or the whole general concept of compulsory super because you have failed to actively and appropriately manage it.

Sorry for another big post

I understand completely what you are saying, and agree in principle. However, to "appropriately" manage my super which I have paid quite a lot to a Super Fund to manage for me seems to fly in the face of what they are being paid to do.

Sure, personal responsibility etc would dictate that I should take an active interest in what is being done with my super; however, this is not unlike building a house. I pay - whatever the cost is - to have a professional builder (I hope) build my home, and for that money I expect it to be built according to standards. I am not a builder, and hence rely on them to do the best for what I have asked. Not completely unrealistic I think?

Sure the Super Fund is not a mind reader and of course I allocate my super fund accordingly, yet it brings me back to what are they doing with my money to lose so much of it? Sure, many have lost more, and some not as much, yet there has to be an element that if they are not 'putting' my money to its best use, or acting responsibly on my behalf then I should have recourse to invest my money as I see fit - that is not be forced to have it under any super type scheme.

Tax advantages etc should not be the driving force as to why super is a good thing. The rules of it change almost every 2 yrs, and the playing field when you enter will not be - as shown historically - be the same when I exit. I would also contend as has been suggested that the employer is paying “my” super. I can’t see how this is correct. The super is part of my salary, so I am paying for it. A job offered says $50k plus super ($4500), or $55k (including super). Either way, it’s built in to what is being offered, is it not?

The one biggest problem I see about super is that there is – generally – a belief that the investor (super payments made by an employee) is a sophisticated investor and has an acute understanding of what takes place. I think on the whole this is a false assumption, as many believe they pay in and when they retire it will all be there plus the % earnings. Sure, this is a little naive; however it would appear that this is generally the case. So if I was in my late – lets assume – 40’s had made payments for 25 odd yrs, contributed a little extra a long the way and had a balance of lets assume $180k, and base that on broad super losses for 07/08 and 08/09 financial yrs, then I could have lost some $50k. This would mean for a worker on $75k who pays only 9% over the next few yrs – assuming no real substantive wage increase or increase in super % contributions it will take them about 4 yrs to get to where they were (assume an avg. 6% return per/yr), and a further 3yrs to extend that investment by roughly $50k.

Now, from what I remember the cyclical nature of the economy is somewhere between 5 and 7 yrs, so in this period the avg. super payer would have lost all they had contributed and be back to where they were 7 yrs previous $180k. I will agree that this market down turn has been worse than any for many many yrs, yet if the next one was just as bad – and it could be, no reason why it cant – then the avg. super payer is in $ terms (and just, I might add) going forward, yet in real terms they are stagnating.

Now this example is very real, and has happened to a lot of people. I guess it would be further exaggerated if the amounts were larger???

I am not one for disbanding super or the like, yet I am trying to understand why people see super as the great benefit it’s claimed to be. Maybe I am missing something, I don’t know.

I would also add while I’m going at it, that the ‘playing’ field between public sector and private sector supers are not level, and hence the general tax payer in the private sector is propping up the super funds of public servants. Sure they pay taxes and are in effect propping up their own fund with their taxes, yet doesn’t this go against the grain of how the ‘rest of us’ have to deal with our failing or rising super?

Just trying to open the debate on Super, that’s all. I’m not calling for the abolition of society

 

[Gillie]

I was surprised to see that mine had actually grown 3% for the year to 30th June 2009. I know that most people made losses but am i the only one who made a gain?

 

[stocksontheblock]

Agree with ASXG that the rules will be changed by the time of my retirement, so I am basically investing in other areas. Brad

I think this is the issue I am seeing with Super. You are investing in other areas - maybe because you can afford to, or you believe you will benefit in the long run of doing so by creating a level of debt to fund future growth, or you are investing money you do have in small parcels to grow, and invest back to grow more and on and on...

Yet if you don’t have the disposable income or the means to acquire debt to create growth then you are generally reliant on super as being your one big ticket in retirement, maybe?

So if super is so great for the masses, then why do so many try to invest elsewhere - and yes, apart from accumulating wealth and providing a comfortable life, you are substituting one program which you believe wont provide for your retirement, or may change substantially enough to worry you to ensure you have other means????

 

[pointr]

For me and mine super is a great vehicle in which to hold assets. I worked for a State Gov't authority and was medicalled out, my employer based super was reasonable and is now in our SMSF. For a while it was with an 'advisor' and from him invested in several 'big' names via a master trust. We got sick of losing money while watching him and his staff go on soft commission holidays to Prague at our expense. Every level of management had a cost. Do it your self and you will have no one to blame or commend other than yourself.

 

[Judd]

I believe that, if possible, one should invest through super and outside of super. It is nice to be a few (it does not seem "a few"!) years from retirement and have the income outside of super cover all the overhead costs (rates, insurances, car registration and insurance, telephone, etc) of your household. Means less of a drawdown from your super to cover those costs and allows for an in specie transfer or recontribution strategy (I need to examine those aspects a bit more thoroughly but not today.)

 

[gooner]

I am not one for disbanding super or the like, yet I am trying to understand why people see super as the great benefit it’s claimed to be. Maybe I am missing something, I don’t know.

Tax is the reason its great - you put $100 in and you lose $15 in tax, instead of $46.5 in tax via the tax system. You are $31.50 better off for each $100 of income.

I believe that, if possible, one should invest through super and outside of super. It is nice to be a few (it does not seem "a few"!) years from retirement and have the income outside of super cover all the overhead costs (rates, insurances, car registration and insurance, telephone, etc) of your household. Means less of a drawdown from your super to cover those costs and allows for an in specie transfer or recontribution strategy (I need to examine those aspects a bit more thoroughly but not today.)

Agree, also means you can retire a few years before you can access your super.