Superannuation Funds

[TrueTears]

So I know that in Australia "it is mandated by law that employers contributes a minimum of 9% of an employee's salary to their chosen superannuation fund"

And then my book says "superannuation investors are to some extent ambivalent about where their funds are invest as in most cases they are not voluntarily investing their money, they are being forced by the federal government to do so."

So I'm wondering, who is the investor here? Is it the employee who is forced to invest 9% of their salary (which is contributed by the employer) to a superannuation fund, or is it the employER who is forced to contribute this extra 9% of an employee's salary to a superannuation fund chosen by the employee?

[Albeno69]

So I know that in Australia "it is mandated by law that employers contributes a minimum of 9% of an employee's salary to their chosen superannuation fund"

And then my book says "superannuation investors are to some extent ambivalent about where their funds are invest as in most cases they are not voluntarily investing their money, they are being forced by the federal government to do so."

So I'm wondering, who is the investor here? Is it the employee who is forced to invest 9% of their salary (which is contributed by the employer) to a superannuation fund, or is it the employER who is forced to contribute this extra 9% of an employee's salary to a superannuation fund chosen by the employee?

well casual employer is not forced but for a full time it is compulsory to pay super.

[TrueTears]

Yeah who's the investor here?

[Albeno69]

Yeah who's the investor here?

the employee cos its going into his super fund

[TrueTears]

But I thought superannuation funds are institutional investors and thus the employer would be the investor?

[mba]

Definition of investment:

investing: the act of investing; laying out money or capital in an enterprise with the expectation of profit

Definition of investor:
 

someone who commits capital in order to gain financial returns

The employer does not get any gain out of contributing to their employee's super fund. They definitinely would not expect to receive a profit, therefore they are not investing, they are simpling contributing the money.

The employee is the investor as they either decide whether to manage the monies themselves (SMSF) or send it to a fund manager. They obviously would these funds to grow as well so they meet the definition of an investor.

MBA.

[TrueTears]

Yeah but the thing is I'm confused about how the book says "superannuation funds are institutional investors" and institutional funds means an investor who invests on behalf of someone else. Since the employer is forced to contribute 9% of the employee's salary to superannuation, they are investing on behalf of the employee.

[ninwa]

The superannuation fund invests on behalf of the employee; the employer merely provides the funds with which to do so.

[TrueTears]

So is the superannuation fund a company or something?

[ninwa]

I suppose so? I'm not sure what the technical definition of a company is. There are different types of superannuation funds (the main ones being retail funds - run for profit; industry funds - not so profit-centric; and self-managed funds)

[TrueTears]

o i see, so the employer forced to contribute money for the employee to a superannuation fund, how does the superannuation fund then "invest" this money? they just get the money from the employer and keep it until the employee retires don't they? How is that investing?

i dono, a bit confused on this.

[ninwa]

Employer must contribute at least 9% (soon to be 12%) of employee's salary to employee's nominated superannuation fund.

Superannuation fund will invest the money. Employee can choose the investment option.
http://www.unisuper.com.au/investments/investment-performance <--- the drop-down list under "Investment option" will show you the usual range of options most superannuation funds offer.
(note that UniSuper is merely one of the hundreds of funds out there and your fund may have slightly different options)

Money (hopefully) grows.

Employee gets (hopefully) more money than they originally invested (via their employer) back when they reach the retirement age.

[Edmund]

The employee is forced the contribute (and invest) an amount into super. These funds can be invested in fixed interest etc...

There are many benefits for this, so people do make personal contributions to their super. For example, you could contribute income into you super which is tax free, and growth while being invested in super is only taxed 15%. Whereas if you invested outside super, you would be taxed at your marginal rate (depending on how much you earn). So when you retire, you can take your monies out of your super tax free....

So, locking away your monies for a long time would eventually be a good investment

[mba]

I think you're over complicating it.

The employer contributes the 9% to the employees super fund. That is it, it is a contribution, a wage expense.

The employee then decides where he/she invests the money. Either in a self managed super fund or a fund managed by a fund manager (i.e.: instiution).

I think you are forgetting that the EMPLOYEE decides where to invest his money, as I said he/she can manage their own SMSF or let a insto fund manager to manage the super investment for he/she.

MBA

[ninwa]

I think you're over complicating it.

No that's pretty much what I said