Superannuation is a way to save for your retirement. The money comes from contributions made into your super fund by your employer and, ideally, topped up by your own money. Sometimes the government will add to it through co-contributions and the low income super contribution.
Your employer must pay 9.5% of your salary into a super fund. This is called the Super Guarantee and it’s the law. The Super Guarantee will gradually increase to 12% in coming years.
Over the course of your working life, these contributions from your employer add up, or ‘accumulate’. Your super money is also invested by your super fund so it grows over time. When you retire, you will have money to live off – a nest egg. Super is a lifetime investment that has many benefits. For most people, super will be taxed at a lower rate than a similar investment outside super.
If you earn up to $37,000 you may also get a ‘low income super contribution’ of up to $500 from the government. You will get this payment whether or not you add extra money to your super.
Most people can choose the fund for their employer’s super contributions. However, some people who are covered by industrial agreements and members of defined benefit funds don’t have this choice.
If you do have a choice, your employer will give you a ‘standard choice form’ when you start work. The form sets out your options for choosing a super fund. You can select your own or go with your employer’s fund.
Provide your tax file number when you join a super fund. This ensures you’re taxed at the special low rate and your super account is less likely to get lost.
There are a few key things to consider when comparing super funds. Spend some time looking at your choices.
|Things to compare||What to look out for|
|Fees||The lower the better|
|Investment options||Make sure there are options that suit your needs and
comfort with risk
|Extra benefits||Your employer may pay more than 9.5% for certain super funds
or if you make extra contributions yourself
|Performance||Pick a fund that has performed well over the
last 5 years – do not chase last year’s best performer
|Insurance||See what cover is available and what it will cost|
|Service||Call the fund or browse their website to see what other
services they offer
For most people, your employer must pay an amount equal to 9.5% of your salary into your super fund account.
It’s important that you get paid what’s rightfully yours. The 9.5% employer contributions are based on your ‘ordinary time earnings’. For example, if your ordinary time earnings are $50,000 then you should be paid an additional $4,750 into super.
You can make extra contributions by:
Money in your super fund account is invested by your super fund. Most super funds offer a variety of investment options.
For example, if you choose a market – linked investment, the value of your super will move up and down with market movements. Or you might select a stable option with lower expected returns but fewer ups and downs.
You can choose how you’d like your money invested, if you want to. You can also transfer your money to a different investment option within the fund, or transfer to another super fund at any time.
If you retire and have reached your preservation age (i.e. 55 to 60), you can withdraw your super. There are three ways you can get your super:
If you choose to take your super as a retirement income stream, the money that you’re not accessing continues to work for you and earn interest.
Understanding how super works can bring great benefits whether you are just starting out, are close to retirement or have already retired. Learn the basics and you can become your own super hero.