Day 153 Superannuation funds

Superannuation funds

The superannuation fund is the retirement funds implemented by many countries with the purpose of providing incomes to people after retirement. It is a crucial part of social welfare program and also plays n significant role in the financial market. In Australia, the super funds are the major source of capitals in the market, hence as a financial decision maker, we should understand this type of investment. 

To invest in a superannuation fund will generate substantial taxation advantages. Generally, the capital gain will face a tax rate at maximum 15% and tax free during the pension phrase. In fact, the average tax rate will be around 7% to 8%. Other benefits of superannuation investment, including tax deductions over the guarantee charge amount, such as: fringe benefit tax. In addition, this asset is protected from creditors under the regulation of the bankruptcy act. 

There are two categories and three types of superannuation funds. The category is divided into accumulation fund and defined-benefit fund. Where the accumulation fund has determined members’ contribution, and the final return depends on the fund investment performance. On the other hand, the defined-benefit fund defines the payment at the end in advance. This value is calculated in relation with the employee’s position and salary level. Consequently, the main difference between these two categories of funds is the party that bears the investment risk. Where the risk is born by the contributor on the defined-contribution fund, and by the fund in the defined-benefit fund. Moreover, the three types of super funds are: employee-related funds, including: company funds, industry funds and public sector funds; public offer/retail funds which accept individual contribution in the market; and small-self managed funds(SMSFS). 

The last thing we need to be aware of is the regulation of the superannuation. The ASIC is responsible for market integrity and investor protection, and APRA is responsible for prudential regulation. However, the SMSFS that has less than five members need to report to ATO.