My name is Katherine Isbrandt from About Retirement. I'm certified financial planner and you are watching About Retirement TV.
The place that I created for everyday Australians who are preparing for retirement or those who have already retired
and would like to improve their financial outcomes income growth of assets tax and government benefits and so much more.
Hello in this video I want to show you how and why to salary sacrifice to superannuation and your immediate financial benefits of salary sacrifice
to Super in a way you most likely have never seen before.
Real examples that you can implement into your life. I really hope it will open your eyes to the incredible benefit of it
and how to grow your super for your retirement fast.
What is salary sacrifice and how does it work?
Salary sacrifice is your agreement with your employer for some extra voluntary contributions you want to make to super
rather than receive that portion of income in your bank account after paying income tax.
The normal income arrangement and payment between employer and employee is very simple:
You earn your gross taxable income
Employer first deducts the tax payable to a Tax Office
and Net income after tax is paid to your bank account.
Under salary sacrifice arrangement:
You earn your gross income
First employer deducts your salary sacrifice and pays it to your super fund
Then the balance of income becomes your new taxable income
Employer then deducts tax payable to the tax office
and Net income after salary sacrifice super contribution and after tax is paid to your bank account.
So your saving benefit comes from the difference of tax rate between your MTR and superannuation contributions tax of 15%
Salary sacrifice is a type of concessional contribution to the super.
If you are unsure what concessional contributions are, have a look at that video explaining what types of contributions we have in Australia
So let’s now see the real-life examples.
The average income in Australia is almost $85,000, but to be on conservative side,
for the purpose of this exercise I picked the income of $70,000 to show you my comparison.
We have two friends –Mary and Susan – both nurses, both on $70,000p.a, and both wanting to save $10,000pa for their future.
Salary Sacrifice Australia, Tips, Traps and Benefits. A completely different view of benefits of salary sacrifice
Well let’s be honest, what we all really want from our super fund is the lowest fees,
best returns with minimum risk, a super fund that looks after your interest as members, and provides us with a free advise.
Well Sorry to disappoint you, but none of the super funds do that.
So, unfortunately as with anything else in life, to make a good choice, you need to do a bit of work and research.
But I am here to help you and give you some suggestions how to make this process easier.
But first, let's start with the most important thing about superannuation in Australia, which I can see, is still quite a confusion.
From 1st January 2021 the Super Choice law was extended giving more Australians ability to choose their own superannuation fund,
so you no longer are locked into your employer's super fund.
So every employer needs to offer their employees a CHOICE OF FUND.
I will leave the link to the tax office page where you can find more information about that decision.
There are lots of videos and articles you can find that give information about "the best" super fund,
but mainly what I see is the advice to choose the fund based on level of fees and
well.. what the government has been advertising, based on performance.
As important as those two are, there is no such thing as "the best" super fund.
There are over 500 superannuation funds in Australia and thousands of different investment choices,
so choosing one, can feel like a daunting task.
Choosing the super fund that will best suit your needs, as I said before, is pretty complex and requires a bit of work on your part,
so I will go over the steps that I take when choosing and recommending a fund to my clients.
So first let's go over the types of superannuation funds that you can choose from because this is quite important.
1. RETAIL FUNDS
Those are funds run by financial institutions. They are generally open to anybody.
The general belief about the retail funds is that they tend to be more expensive. Well that's not the case due to huge competition in the market.
Retail funds have come down with pricing and they can provide you with great investment choices, so they are really worth your consideration.
2. INDUSTRY SUPER FUNDS
These funds are generally designed for people who work in a particular industry,
but some industry funds will allow anyone to join.
But just because your employer provides you with this option doesn't mean you have to accept it.
You can still choose your own fund.
Industry funds are regarded as less expensive or "cheap".
As I said, industry has changed, has matured, there is a lot of competition within the industry,
therefore there is hardly these days a difference in pricing between many retail funds and industry super funds.
3. PUBLIC SECTOR FUNDS
Those are funds generally only open to government employees.
4. CORPORATE FUNDS
These funds are usually only available to employees working for specific employer,
so if your employer provides you with this option, you can take it or you can request your own.
Now, corporate funds tend to be more expensive, but they do have very good investment options in most cases,
and before you dismiss it please always check your insurance options as they tend to be some of the best.
5. SELF MANAGED SUPER FUNDS (SMSF)
These are funds where you decide to run your own fund as a trustee.
You take on all the responsibility of administration, compliance and investment decisions.
SMSFs they tend to be complex and they are most certainly outside of the scope of our discussion here,
but if you decide to have your own SMSF you can always request your employer
to make all superannuation guarantee contributions, together with any salary sacrifice contribution to your fund.
It is super fund like any other and it is your choice.
At the commencement of your employment your employer will likely provide you with SUPERANNUATION STANDARD CHOICE form.
Alternatively you can download this form from the Australian Taxation Office website,
but I actually listed the link below this video, just to make it a little bit easier for you.
So what steps should you take in order to choose the most suitable fund for yourself?
Watch how to choose super fund, best fund really? Whichever way you choose is best for you, get the full financial and retirement advise.
Most people once they get to the age of 50 or 60 start thinking:
"Do I have enough money saved for my retirement?" "Is it too late to save enough?"
And you might have a reason to worry, because superannuation in Australia, which is our best form of saving for retirement,
is filled with rules, regulations, and contribution limits.
But I might have some great news for you today. I would like to explain a little known contribution opportunity,
that might help you: No. 1 - to Catch up on all those lost years of not contributing enough,
No. 2 - Grow your super and ultimately retire better and,
No. 3 - Get tax benefits in the form of tax deduction for your contributions.
Carry Forward Super Contributions otherwise known as
Superannuation Catch-up Concessional Contributions, but first let's review very quickly.
What concessional contributions actually are?
Those are your deductible contributions, so contributions for which someone claims tax deductions,
when money is being contributed to superannuation.
And that includes superannuation guarantee contributions or SGC,
which are your employer contributions and obviously that's your employer who is eligible for tax deduction.
Your salary sacrifice contributions.
If you are self-employed, all your self-employed contributions for which you wish to claim tax deduction,
or even right now a private person, you don't have to be self-employed anymore,
but a private person can contribute to super and still claim tax deduction.
But we all need to play by the rules.
The annual limit of this type of contribution is $25,000.
Well, I'm assuming that you have checked that you are actually eligible to contribute to super in the first place.
If unsure, have a look at this video. If you need to get familiar with superannuation contribution rules including SG Contribution have a look at this video.
If you would like to understand benefits of Salary Sacrifice, here is another video for you.
And now, let's dive into this. What are Carry Forward Contributions?
Carry Forward Contributions, so-called Catch-up Contributions, or as the proper industry naming is:
Carry Forward Unused Concessional Contributions,
are not any special type of contributions really.
They are often overlooked contribution opportunity, allowing you to contribute to your superannuation fund
the amount of Concessional Contributions that you have not used in your previous years.
You can only contribute up to Concessional Contribution limit and up to five years.
If you are thinking of your personal contributions this is the video to watch Catch up Carry Forward Concessional Super Contribution
where you will find out exactly how to calculate your maximum benefit for this strategy
Well, I can bet my life that most people in Australia these days, have majority of their savings within the superannuation,
whether in accumulation stage or in a pension stage.
And the size of superannuation investing will only be growing over time.
So, what are the 20 biggest superannuation funds in Australia?
Based on funds and their management therefore, how much money each superannuation fund is looking after.
Well the biggest superannuation fund in Australia is AustralianSuper,
with and just wait for it, $191,423,158,000 that they are looking after.
The second biggest super is Aware Super, with QSuper following, Public Sector Superannuation Scheme,
Unisuper, Colonial First State, MLC, Sunsuper, Retirement Wrap which is part of BT,
CSS fund which is a public sector fund therefore, it's not for everyone.
Super Directions Fund which belongs to AMP. Military Superannuation & Benefits Fund which is also a public fund.
REST Super, HESTA, CBUS, HOSTPLUS, Wealth Personal Super which belongs to AMP.
Retirement Portfolio Service which is part of One Path, it used to belong to ANZ but ANZ decided to sell it to IOOF,
and then it follows with IOOF Portfolio Service Superannuation Fund,
Mercer Super Trust and Care Super.
So is your superannuation fund listed here?
As you can see some superannuation funds are public, some are industry funds, others are so-called retail funds.
If you don't know really what is the difference between them and what they all can provide you with as a benefit and what are negatives,
have a look at my video "Best Super Funds - Really? How to choose super fund. "
So right now let’s check who made the most money out of the total fees paid by members in 2020.
This is based on information that I gathered from APRA site.
The superannuation fund that received the most of total fees paid to super fund by members in 2020.
Is AustralianSuper with $804,638,000 in 2020
followed by REST Super, HOSTPLUS, Sunsuper, MLC, Aware Super,
Retirement Wrap which is BT. AMP Superannuation Fund, Super Director's Fund, HESTA, OnePath Retirement Portfolio,
CBUS, Colonial First State First, QSuper, Unisuper, Wealth Personal Superannuation, that belongs to AMP,
IOOF Portfolio Service, National Mutual Retirement Fund, Mercer Super Trust,
Care Super and Commonwealth Essential Super.
Is you super fund listed in the second table?
So why am I showing you those numbers?
I really want you to remember that superannuation is a big business
with amount of money and profits that are beyond comprehension of a normal person.
Total assets invested in superannuation system is already over 3 trillion dollars and it is only growing.
So, no wonder every super fund and every investment house wants a piece of pie.
What I would like you to take out of this video is to make sure that you can get your piece of pie and eat it too.
And not to be a casualty of superannuation business or fees grabbing.
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Fees are inevitable but pay those that bring you benefit, that assist you with smart planning,
and smart investing, that improve your investment returns minimize volatility if this is what worries you
and try to reduce fees that are not for your benefit.
And please do not get emotionally attached to your Super Fund it is a business for your fund and this is how you should treat it as well.
Superfund Fees and Charges Explained
It is essential that you understand what fees are being charged and where they you are getting a good deal
How to get an immediate 50% return on your investment – guaranteed?
If you are a low or a middle-income earner and you make and after-tax contribution to your super fund,
and you do not claim a tax deduction for that part of your contributions, you might be eligible for a government co-contribution of up to $500.
So, if you total income is equal or less than $39,837 for the financial year 2020/21 and you make a non-concessional contribution of $1,000,
you will also receive government a co contribution of $500 – so basically with 0 risk
No investment has even been made you’ve just contributed $1,000 to your super, government will add extra $500
– as far as I can count, that is a guaranteed, zero risk return of 50% on your $1,000 contribution
If your income is slightly higher, between $39,837 and $54,837 this financial year, your co-contribution will reduce progressively,
but it is still worth doing, as co-contribution is your free money.
But one thing is contribution, the other is what to do with my money and how to invest it.
I have created an eBook: “12 Principles of Investing”,
I've listed a link to this ebook in the description below this video so feel free to download it and
apply to your investing decisions
How you can make 50% capital return immediately. Are you curious?
Well you better stick around then to find out. If you enjoyed this video please give it Thumbs Up And subscribe to this channel not to miss my next video
If you wish to learn more just visit my website AboutRetirement.com.au where you
can find lots of videos and articles about preparation for retirement and how to improve it if you are already there.