what is superannuation 
a superannuation is an australian pension program created by a company to benefit its employees funds deposited in a superannuation account will grow through appreciation and contributions until retirement the term super is more commonly used when referring to pension plans available in australia the u s equivalents to a superannuation plan are defined benefit and defined contribution plans understanding superannuationfunds are added to the superannuation fund by employer and potentially employee contributions this monetary fund pays out employee pension benefits as participating employees become eligible an employee is deemed to be superannuated upon reaching the proper age or as a result of infirmity at that point the employee can draw benefits from the fund a superannuation fund differs from some other retirement investment mechanisms in that the benefit available to an eligible employee is defined by a set schedule and not by the performance of the investment types of superannuation plansthere are two types of superannuation funds 1with an accumulation fund employees and employers periodically contribute to the fund so that it grows over time the funds are designed to increase by using the contributions in investment strategies to give a return on investment allowing for larger distributions 2accumulation funds are distributed to retirees based on the returns generated so the more you put into the fund and the more it grows the more you can receive in retirement superannuations are taxed differently in the u s and australia it can become complicated if you have an australian super and are subject to u s tax laws it s best to consult with a tax expert to find out your tax obligations defined benefit plans are funds that make distributions based on a formula to give a guaranteed amount of income when withdrawals begin these are similar to annuities or pension plans where employment length and salary history are considered 3benefits of superannuationa superannuation has many benefits some of the most notable are 41superannuation from multiple perspectivesa defined benefit superannuation supplies a fixed predetermined benefit depending on various factors but it is not dependent on market performance specific factors include the number of years the person was employed with the company the employee s salary and the exact age at which the employee begins to draw the benefit employers often value these benefits for their predictability from a business perspective they can be more complex to administer but they also allow for larger contributions than some u s employer sponsored plans accumulation funds are not as predictable but still rely on the same factors as defined benefit plans employers who contribute to a super account pay a set tax rate of 15 on the contributions if you re self employed you can deduct your contributions from your taxes but your super fund pays a 15 tax on them 5in a defined benefit plan upon qualifying for retirement an eligible employee receives a fixed amount it s typically distributed on a monthly basis the amount is determined by a preexisting formula in that regard the function of a superannuation is similar to receiving social security benefits upon reaching the qualifying age or under qualifying circumstances accumulation funds can increase payouts but they can also decrease them if the market doesn t cooperate employees should be cautious when choosing this type depending on what other retirement savings vehicles the employee has there may be other implications that require consideration to access the funds in the most tax efficient way possible non concessional contributions are from your after tax income and are not taxed in a super fund concessional contributions are from pre tax income and are taxed at 15 when placed in your super 6contributions made to a super from after tax income are not taxable however capital gains made in the fund are taxable under certain circumstances everyone has a super capital gains tax cap which they can claim under their non concessional gains superannuation vs other planswhile a superannuation guarantees a specific benefit once the employee qualifies other traditional retirement vehicles may not for example a defined benefit superannuation is not affected by individual investment choices but u s retirement plans such as 401 k s and individual retirement accounts iras can be affected by market fluctuations in that sense the exact benefit from an investment based retirement plan may not be as predictable as those offered by a superannuation market fluctuations do not impact the benefits of defined benefit funds but the funds in the plan are typically managed by a trustee who invests those assets in a mix of equities and fixed income securities in that sense there is some risk that a market downturn could impact the fund s solvency in such cases the plan could become underfunded meaning there are not sufficient funds to meet future obligations a person on a defined benefit plan generally will not have to be concerned with the total amount remaining in the account and is usually at low risk of running out of funds in other investment vehicles however poor performance could mean a person might run out of funds before they die companies are required to report the funding status of the plan to the appropriate tax authority annually and to make that information available to employees in the event a plan is underfunded a company may be required to provide additional funding to remedy the situation 