Super is a special investment ‘structure’ with tax advantages created by the government to help people save for retirement during their working life.
You can invest in the same assets, such as cash, fixed interest, shares or property, inside or outside super. The difference is that the government provides tax savings on investments inside super as an incentive to put your money in, even though you generally can’t take it out again until retirement.
To find out more about what super is visit ASFA's Super Guru website or read our What is super fact sheet.
What's the benefit of compulsory super savings?
Having a compulsory savings system helps us save consistently for retirement over our working lives. Most people find it hard to care about their future self and prefer to focus on the present. Without compulsory savings, we wouldn't save enough for retirement because most of us would spend our money today instead of deferring spending until tomorrow.
Other benefits of our compulsory savings system include:
- benefiting from compounding returns
- not leaving savings until it's too late and limiting the risk of events later in life, such as disability, preventing us from saving
- we're investing across the economic cycle.
Year after year the savings add up
The lower tax rates mean the same investment in super can grow more than if invested outside super.
Assumptions: Net income of $60,000 in first year, increasing by 4% pa. Invest 9.5% of net income in first year, increasing to 12% in year seven as per the rise in the Super Guarantee. Super contribution is after tax and returns are taxed at 15%. Investment returns outside super are taxed at marginal income tax rates plus 2% Medicare Levy. Assumes tax rates won’t change in future. Both investments produce 8% pa returns and incur a $71 product fee plus 0.81% in admin and investment fees as per the MySuper median fees in the SuperRatings Benchmark Report 2015. Ignores impact of dividend franking, capital gains tax concessions on owning shares for over 12 months. Amounts are in today’s dollars. Source: Mine Super May 2015.