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This
booklet gives information of a general nature and is not intended
to be relied on by readers as advice in any particular matter.
You
should consider consulting a financial adviser regarding how this
information may apply to your own circumstances.
Other
formats
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UNDERSTANDING FEES, CHARGES AND TAXES
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FEES AND CHARGES
Fees and charges have a direct impact on the amount of money you
have in superannuation. It's important to take the time to understand
them before investing in a super fund.
While minimising fees is important, you also need to consider
what value you're getting from the fees you're paying. The lowest
cost fund will not necessarily be the fund that is most appropriate
for your needs. A fund with higher fees might provide you with value-added
benefits which can actually help your superannuation be worth more
over time. For example, some funds might provide free financial
planning services, higher levels of ‘automatic acceptance’ insurance
cover or investment options more appropriate for your needs.
Having said that, small differences in both investment performance
and fees can have a substantial impact on your final superannuation
balance.
To make it easier for you to understand and compare funds, super
funds are required to show their fees and costs in a standard way.
In the Product Disclosure Statement (PDS) for a super fund, you
will find a table listing all significant fees and costs for the
fund.
If you would like to find out more about the impact of fees based
on your own circumstances, ASIC's FIDO website has a superannuation
calculator to help you compare different fee options at www.fido.asic.gov.au.
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This table will show fees such as:
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Fees when your money moves in or out of the fund
(You may also incur a buy-sell spread when your money moves
in or out of the fund)
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Establishment fee
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This is the fee to set up your account in the fund.
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(This column could show a dollar amount, a percentage-of-assets
based fee, or Not Applicable or Nil)
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(This column could include when the fee will be
charged and where it will be deducted from)
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Contribution fee
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This is the fee for the initial and every subsequent
investment you make to the fund (or that may be made on your
behalf e.g. by an employer).
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Withdrawal fee
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This is the fee charged for each withdrawal you
make from the fund (including any installment payments and
your final payment).
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Termination fee
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This is the fee when you close your account with
the fund.
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Management costs
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Administration costs
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These are the fees and costs for operating the
fund. They include administration and other fees charged by
the product issuer, distribution costs and other expenses
incurred in operating the fund.
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Investment costs
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These are the fees and costs for investing the
assets. They include fees charged by the product issuer, fees
paid to external investment managers, and other expenses incurred
in investing the assets (excluding transaction costs). (The
amount you pay for specific investment options may be shown
on another page.)
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Additional service fees
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Switching fee
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This is the fee for when you switch between investment
options. (You may also incur a buy-sell spread when switching
between investment options.)
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Adviser service fee
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This is the fee for extra advice from your adviser
about your investment. (An adviser may also be paid other
amounts as commission out of one or more of the fees listed
above.)
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You might also be charged premiums for your insurance cover. If
not included with the above information listing, this information
should be detailed elsewhere in the fund's PDS.
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TAX
While tax does apply to superannuation, it is deducted
at significantly lower rates than tax on other investments.
Here's a summary of the tax advantages of superannuation:
- Lower tax on contributions: Employer (e.g. the compulsory
9% employer contributions, plus salary sacrifice and
additional employer contributions) and any voluntary
tax deductible contributions you make which provide
you with a personal tax deduction are subject to tax
going in the super fund at 15%. This is substantially
less than most marginal tax rates. From 1 July 2007,
most self employed people can claim a full tax deduction
for their super contributions. Contributions tax is
not charged on any personal after-tax (or non-concessional)
contribtuions.
- Tax offsets: If your spouse earns less than $13,800
(total assessable income and reportable fringe benefits)
a year you may be able to make contributions into
their super account and you receive a tax offset up
to $540 a year. For more information on spouse contributions,
click here.
- Lower tax on investment earnings: Complying super
funds are taxed on their investment earnings at a
lower rate than most other forms of savings. While
the maximum rate of tax on super investment earnings
is 15%, the actual tax rate paid by most super funds
is usually much lower than this. Earnings on investments
supporting a superannuation pension are tax free.
- No tax or lower tax on benefits: If you are aged
60 and over and you are eligible to access your superannuation,
benefits paid from a taxed super fund will be tax-free.
This applies whether you take your super as an income
stream or a lump sum. If you take your super as an
income stream, you will not pay tax on the payments
from the income stream. If you are less than 60 years
of age when you draw on your super, the tax you pay
will depend on what basis your contributions were
made and whether you take the money as a lump sum
or income stream. If you are between 55 and 59 years
of age, tax concessions can reduce the amount of tax
you have to pay on income streams.
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TIP
Give your super fund your tax file
number. This will help you keep track of your
money and make sure you pay the lowest rate of
tax on your contributions. If you don’t this could
significantly reduce your retirement savings and
could potentially cause your insurance cover to
lapse if you aren’t able to top up your super
account and it has insufficient funds to pay for
the insurance. From 1 July 2007, if you start
with a new employer and give them a tax file number
declaration form, they must pass your tax file
number to the super fund they deposit your money.
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SPOUSE CONTRIBUTIONS
Contributing to your spouse’s super is beneficial if
your spouse has a low income or is not working. You
could receive a tax offset of 18% if you contribute
up to $3,000 for your spouse – that could mean an extra
$540 for you.
Making a contribution on behalf of your spouse helps
them build their retirement savings, which is particularly
relevant if they are unemployed or temporarily taking
time off work.
To qualify, your spouse must be:
- Under 65 years of age, or;
- 65 to 69 years of age and have worked at least 40
hours within 30 consecutive days during the financial
year.
To claim the spouse contributions tax offset, both
you and your spouse need to be Australian residents
for tax purposes.
To receive the full offset, your spouse must have
an assessable income and reportable fringe benefits
of less than $10,800 in the financial year that you
make the contribution on their behalf. To qualify for
a partial offset, your spouse must have an assessable
income and reportable fringe benefits between $10,800
and $13,800.
Your super fund or financial adviser can tell you how
to set up an account in your spouse’s name and make
a contribution for them.
Did you know?
Most employees make contributions
into a taxed super fund. Some employees
are in funds that don’t pay tax on the contributions,
including public servants and some employees
of large companies. Benefits paid from untaxed
funds are still subject to tax, even if
you access your super after age 60 years.
If you are unsure if you are in an untaxed
super fund, check with your super fund.
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