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What Is a Superannuation Contribution?

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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 21 November 2016
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A superannuation contribution is some sort of donation of money into a fund designed to provide for a group of employees once they reach retirement age. These contributions can come from either the employers or the employees and are generally allowed to grow through investments with little taxation to diminish them. When the employees retire, they are allowed to share in the benefits that the fund has reaped over the years it has existed. Many governments require a superannuation contribution from all employees and employers to ensure that retirees will have enough money to live without having to rely on government funds.

There are various methods used by businesses to ensure that their employees have enough money to maintain a high quality of life even when they can no longer work and earn money. A superannuation plan is one of these methods. It is essentially a type of pension fund which takes money from both employers and employees and then grows over time through investments. Once an employee reaches retirement age, he or she can then take money from the fund. Such a fund would not be possible without regular superannuation contribution.

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What makes a superannuation contribution so valuable is that the money within the fund is generally free from most taxes. Although countries have different laws regarding these contributions, most are willing to be lenient in taxing the funds in order to provide investors with incentives for using the programs. As such, contributing to a superannuation can be considered a wise investment.

In most cases, an employee who makes a superannuation contribution cannot reap the benefits until retirement age is reached. Depending on the laws of the country involved or contracts signed by the employees, switching jobs may be one case where an employee may receive the superannuation benefits before retirement. In some cases, they may be carried over to the new place of employment. Once the employee retires, he or she will generally receive a portion of the fund commensurate with the amount they contributed to it.

Certain countries require for an employee or an employer to make a regular superannuation contribution. This is done because such funds wouldn't provide much benefit without significant capital within them. Since the burden on governments to provide for retirees grows larger as people live longer, any type of relief from this burden is welcomed. As a result, making contributions to a superannuation fund compulsory for employers and employees ensures that the government will not be solely responsible for supporting these individuals when they retire.

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