Superannuation is talked about a lot in the public sphere but it isn’t always well understood or utilised. Susanna Nelson looks at some ways you can ensure you have enough superannuation for a comfortable retirement
Most company employees take a fairly passive attitude to their super. It silently accrues over time without them having to do very much—their employers are required under law to contribute a percentage of their income, currently 9.25 per cent, towards a fund. By contrast, restaurateurs—like all small business owners—need to be pro-active about saving for their retirement.
Some business owners see the business itself as an investment in the future. This is an extremely risky approach, as it ignores the fluctuations in takings over the years, or the potential for unanticipated expenditure. Those restaurants affected by extreme weather events in recent years provide an unfortunate reminder of the sometimes precarious aspects of running your own business. Most entrepreneurs would agree that it is unwise, to put it mildly, to rely on the aged pension to maintain a comfortable lifestyle well into old age. It is important to quarantine some of your savings for the future—and super is the most effective way to do this.
Teage Ezard, founder of Melbourne restaurants Ezard and Gingerboy, and Sydney’s Black by Ezard, says, “I’ve always had superannuation. It started for me when I commenced my first full-time job with AMP. Since then I’ve always managed to contribute for my retirement—one day.”
He continues: “Superannuation has a compounding interest, so it’s never too late to start. Begin with a comfortable amount, then as you grow, increase the levels of contribution and diversify your fund.”
When you contribute to super, you ensure that a proportion of your income is not only saved and invested, but out of your reach, or ‘preserved’, until you turn 60 (or, if you were born before June 1964, as early as 55). The money is locked away and invested by your fund in a range of assets, and there are generous government tax deductions and payments in place to encourage you to make additional super contributions.
You can make voluntary contributions to your super at any time—either before or after the income has been taxed. Concessional contributions are those made by salary sacrifice (if you’re an employee), or tax-deductible contributions for the self-employed, before tax. You can also make after-tax contributions from your current savings.
The tax laws around superannuation can be confusing, but it’s worth knowing them because tax relief is an important benefit of a well-structured super scheme. Super contributions are taxed at 15 per cent, unless you earn more than $300,000, in which case your income attracts an additional 15 per cent. If you earn less than $37,000, you can expect a refund of the contributions tax. These threshold rules may be subject to change with the installation of a new federal government, though the Coalition’s policy on superannuation is unclear. Your super earnings are also taxed at 15 per cent, but the amount you receive at maturation is untaxed if you receive your funds over the age of 60.*
A self-managed super fund may be one solution for restaurateurs to consider. There is no minimum amount required to start an SMSF, and it allows you the freedom to choose where your super will be invested. As the name suggests, you set up and manage your own fund. This freedom also comes with considerable responsibility.
SMSFs require diligent administration to set up, and may not be worthwhile if you earn under $200,000 per year. There are compliance, tax, reporting and auditing implications for setting up an SMSF—and you are the trustee of the fund, managing your own investments. While this means you have complete control over your money, it also means you are responsible for the entire investment strategy, including the need to diversify the investments to spread the risk and return of the options. You’re also responsible for ensuring that your fund is isolated from your other finances, and being able to demonstrate that it is superannuation and will not be drawn upon except according to the laws governing superannuation access in Australia.
This may be too much for some small business owners to manage, but if you can outsource some of the number crunching, it may still be worth the trouble to know where your money is. “I take advice from my financial planner and my accountant,” says Teage. “Between these two guys as part of the overall strategy, we ensure that we cover and plan for what we term ‘rainy day’ cover for myself and my family.”
“My SMSF doesn’t entail much work at all. Reporting is accurate and transparent, enabling me to be able to view high and low performing funds.”
For others in the hospitality industry, an industry super fund is possibly the best way to go.
HOSTPLUS is the restaurant and catering industry super fund, which means it is run for members as a not-for-profit service, with all profits re-invested to benefit members. Many industry super funds provide investors with choice and control about how they manage their portfolio and spread the risk and return. “Our fees are low and we’re a well-performing fund,” says Umberto Mecchi, executive manager of strategy and marketing at HOSTPLUS. “While there is a lot of interest in SMSFs at present, they can be difficult to set up and then maintain.
“The restaurant industry is a tough, competitive business, but people do need to start saving for their retirement and this should be just part of your broader financial plan.
“The risk is, taking into account some of the challenges businesses face today, that if you don’t start thinking about saving for retirement now, it might be too late when you’re approaching it. Even if it’s just a small amount that you can put away, with the power of compound interest it could actually help secure a better retirement. It’s about balancing the business needs of today, but having the discipline to think about the implications for tomorrow,” continues Mecchi.
“We all want to retire with some level of dignity and as more baby boomers retire, there will be additional pressure on the economic system to fund retirement through the traditional pension—so it’s important for people to seek advice about how to structure their finances to incorporate the discipline required to achieve that.”
* There are some other exceptions to these tax rules which are subject to change.