Tax efficient investing benefits super balances
Research from Parametric has busted myths that tax efficient investing does not benefit super fund members, with the firm finding that members miss out if their fund fails to adopt an integrated tax efficient approach to equity investing.
Parametric’s hypothetical modelling of tax efficient versus tax naïve equity portfolios found that, if the former is continually practiced, tax efficient investors would retire with lump sum balances 4.69 per cent higher after 30 years of contributions.
The extra savings from tax efficiency as compared to non-efficient investments would peak at 7.2 per cent during the retirement phase.
Should a member contribute $10,000 a year for 30 years and draw down $30,000 a year for 10 years post-retirement, the tax efficient portfolio holder would end up with a net result almost $200,000 better off.
“This is almost $200,000 more that members can use to meet their needs and aspirations in retirement and that’s wholly attributable to having a superannuation fund who practices after-tax investing in their equity portfolio,” Paul Bouchey, Parametric chief investment officer, and Raewyn Williams, the firm’s Australian managing director – research, said.
The tax naïve modelling portfolio adopted a traditional pre-tax focus, ignoring the dividend and capital gains taxes that in fact apply to the portfolio. The tax efficient equity model reflected the other portfolio in all respects other than its approach to tax.
The research assumed that the tax-aware portfolio would halve turnover and not realise higher-taxed ‘short gains.’
AUTHOR
Hannah Wootton
Recommended for you
AMP is to launch a digital advice service to provide retirement advice to members of its AMP Super Fund, in partnership with Bravura Solutions.
Unveiling its performance for the calendar year 2024, AMP has noted a “careful” investment in bitcoin futures proved beneficial for its superannuation members.
SuperRatings has shared the median estimated return for balanced superannuation funds for the calendar year 2024, finding the year achieved “strong and consistent positive” returns.
The second tranche of DBFO reforms has received strong support from superannuation funds and insurers, with a new class of advisers aimed to support Australians with their retirement planning.
