Permanent chaos – Super’s relative stability

Permanent chaos can be overwhelmingly tiring. A bit of stability and consistency in life is generally welcome.

An example of chaos? Greece. Who would be them at the moment? Flat broke and can’t decide whether or not to eject themselves from the Eurozone.

Cravings for stability apply to your money, too. Regular paycheques suit many people. Others prefer self-employment, where income can be thinner than the hair on Elmer Fudd’s scone some months.

When it comes to investing, consistency in the rules is crucial. Who would invest in anything if they weren’t reasonably sure of what the rules were going to be tomorrow?

Superannuation is a form of investing.

“But the rules for super change every week!” I hear you cry. “Is superannuation in permanent chaos?”

Sure, it might seem to be. But the real basics of super have pretty much remained unchanged since it’s introduction. And, to the Abbott Government’s credit, they have been true to their word on “no unexpected negative changes to super” during their first term.

Bet they’re gagging for a second term of daily changes to super!

Too many people say they can’t/won’t trust super because of the constant rule changes.

Sorry, but that’s a bloody cop out. Pathetic. And one that will likely cost those with that attitude dearly in retirement.

They generally don’t understand the fundamentals of super.

At its core, super is really quite simple. If you understand the basics, you can forget the constant “noise” around super changes and focus on the big picture that can make super a retirement goldmine for you.

The basis of super has never changed.

Governments want you to save for your retirement. If you do that via superannuation, you’ll pay sod all in tax. Sod-all tax on the way in, sod all while it’s there and sod all on the way out.

If it wasn’t a low-tax arena – you generally pay less tax on your super investments than on investments outside super – then there would be no incentive for anyone to use it. Governments know that. They know they have to keep super tax lower than marginal tax rates.

Superannuation is a “tax” and “access” structure. In order to get the lower tax rates, you lose access to the money until you’re older.

Smart investors get that. That’s superannuation in a nutshell.

Sure, governments might move tax rates here and there, over generations. They might limit what’s “reasonable” to have in superannuation at lower tax rates.

But if you take an extra $1000 as salary, the average person will be left with as little as $655 or $610 after tax. If you instead send that $1000 to super, $850 will go in to earn for your future.

And when that $850 in super earns money of its own, it will only pay tax at 10-15 per cent. (Once you turn on a pension, it currently pays no tax.)

When the $655 earns money outside of super, most will pay tax at 34.5 to 39 per cent tax. (As little as 0 per cent for some, but as much as 49 per cent for others.)

For most salary earners, we’re talking multiples of $1000 every year. For someone on an average salary of $80,000, the 9.5 per cent super guarantee is $7600 a year that goes in to super.

We’re talking thousands of dollars in tax being saved, every year. Which then compounds in a low-tax environment for, potentially, decades.

The real question most people under 60 should be asking is: “Wow! Can I put more into super?”

Soooooo …

The downside? You can’t touch it for a while. That’s somewhere between 55 and 65 years old, depending on your age and circumstances.

You can stuff up everywhere else early in life. You can spend every cent you earn. You can make disastrous investment decisions, or get swindled.

But no touching your super. So, unless you’re really unlucky, or make a series of foolish decisions, your super at retirement will have bubbled along quite nicely thanks.

If you get those basics, an attitude of “I don’t trust super” should be unfathomable.

Then you move to stage 2, where super goes to a whole new level. This involves making extra contributions, and appropriate investment and insurance decisions.

But you’ve got to have a trust in the basic system first.

Bruce Brammall is the author of Mortgages Made Easy and managing director of Bruce Brammall Financial. E:


Leave a Reply

Your email address will not be published. Required fields are marked *