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Understanding How Superannuation and SMSF Works

Everybody wants to retire early and enjoy living without the daily grind of working from nine to five every day. However, relying on your company’s retirement plan may not be enough to sustain the lifestyle that you are used to. It is therefore important to have other sources of funds upon your retirement. One of the ways to increase the amount that you will receive when you retire is to invest in a superannuation plan and have it managed by professional SMSF services

What is Superannuation? 

Superannuation, also known as a super fund, is an employee pension program created by an employer or company that will benefit the employee upon its maturity. Superannuation acts as a company pension plan that is given to employees upon their retirement or if the employee has met the qualifications and requirements to withdraw the fund. Funds that were deposited in a superannuation fund will grow without any tax implications. Superannuation plans are also benefit-defined or contribution-defined, which means that the amount that employees will get upon maturity is dependent on their accumulated contributions. 

How Does Superannuation Work? 

Superannuation is different from a pension fund. Superannuation or super fund is the amount of money that you make from contributions deposited to your fund while you are employed. Pension, on the other hand, is a government-mandated service that pays you an income when you retire. 

The fund that is deposited in an employee’s superannuation fund is invested in different ventures. The growth coming from these investments are then reinvested to help increase the value of the fund. The idea for a super fund is to secure the financial future of employees when they retire and no longer receive a regular income from an employer. An employee can withdraw the accumulated value of the super fund upon reaching eligibility requirements. 

Employers’ Role. Employers are mandated by the Australian Government to contribute to an employee’s superannuation fund. Employers should contribute at least 9.5 per cent of the earnings of their employees or up to the maximum contribution base allowed. Employers are required to fund contributions for employees who are 18 years old or older and are paid at least $450 or more per month regardless of employment status or whether the employee is an Australian resident or not. 

Employee’s Role. An employee who wants to increase the value of his or her superannuation plan may choose to add to the employer’s contribution. An employee may also choose to start his or her self-managed super fund. 

What is SMSF?

A self-managed super fund is a superannuation plan that employees choose to fund and manage on their own. A person who starts an SMSF will have the ability to manage how his or her funds are invested. However, while having control of your super fund can be appealing, not knowing the ins and outs of managing funds may put your money at risk. Fortunately, several companies provide software and applications that offer SMSF services to help you manage your super funds. 

In an SMSF, an employee will put money in his or her SMSF instead of an employer managed super fund. An employee may also choose to put funds in both the company-managed super fund and his SMSF. 

If you are a qualified employee, the Australian Government mandates your employers to set up a superfund for you. However, if you feel that you can make use of the extra money that you have, you may use the different SMSF services available to help you create your super fund to secure your financial future better. 

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