Category Archives: Superannuation

The Purpose of Superannuation


Superannuation, a long term investment

You can be forgiven these days for forgetting what the real purpose of superannuation is and what it is meant to do for you. And remember, any advice you receive about superannuation has to be in your best interest. In simple terms, implementing that advice should result in you being in a better position than you are now.

What is the real purpose of superannuation? It is to provide benefits for your retirement. It is a long term investment and it should be designed to ensure you are well placed when your retirement date arrives. But not only should you be better off at retirement, but in retirement as well because superannuation, via the pension fund variation, is a very tax effective place to hold your funds during your retirement.

So what of all these other things we can do with superannuation funds. Buying property, holding life insurance and other personal insurances, buying shares, managed funds, and the list goes on.

The purchase of any of these products or assets inside a superannuation fund has to meet the “sole purpose test” which means your fund needs to be maintained for the sole purpose of providing retirement benefits to you, or your dependant if you were to die before retirement.

So the investments you make inside your superannuation fund can only be justified if, in the eyes of a reasonable person, the investment or item can be expected to provide a benefit for your retirement.

Life insurance products are allowed under superannuation laws as they can have the effect of supporting us or our dependants if we were to die or are injured and a claim is required to provide support either pre or post retirement age.

One point worth noting when it comes to investments within superannuation funds, studies have shown that up to 95% of investment return is determined by the asset allocation. A point worth thinking about.

Finally, one of the problems with the superannuation system is that the labels used to describe funds, such as Balanced or Growth are not defined. This means it is virtually impossible to compare Balanced Funds because it’s a bit like comparing apples with oranges. The same applies to comparing other labelled funds such as Growth or Conservative funds. There is no consistency between the way in which the funds are invested within similarly labelled funds.

If however, you would like to know how your fund compares with others of a similar nature, feel free to call us on 0740780900.

Just remember that the main aim of superannuation is to provide for your retirement, and therefore it is a long term investment.