Superannuation & Retirement
Compulsory Superannuation (known as 'Super') for all employees was introduced in 1992. It was created to address the growing concern about the huge number of people set to retire over the next few decades - and the cost of the government supporting them.
Australians have over $1.2 trillion in superannuation assets. Most of this money is inversted in stocks. There are approximately 500,000 superannuation funds operating in Australia.
Transition to Retirement - preservation age
Except in some cases of hardship and/or through a financial strategy known as 'Transition To Retirement', which can begin at age 55, Superannuation cannot be accessed until you are 60 or reach what is known as 'preservation age'. Preservation age is a sliding scale based on your date of birth and in time all people will need to be 60 before they can access their superannuation.
Tax benefits of Superannuation
There are different limits that apply to the amount of money you can invest in superannuation and how that money is then taxed. However, as a general overview, the earnings from superannuation are taxed at a 'concessional rate' of 15%. Then, as long as it comes from a taxed source, when you retirement and start to withdraw your superannuation, it is tax-free.
Building wealth through your Super Fund
There are a few ways you can save money for retirement through your super.
1. Employer Contribution
Employers in Australia are required to pay a minimum of 9.25% (this figure is set to rise to 12% in coming years) of an employee's wages as superannuation, in addition to the worker's base salary.
IMPORTANT: When you are negotiating your salary, be sure to ask for a break down of what you are being offered, as some people incorrectly assume super will be in addition to the the offer you receive, not included in it.
Superannuation is paid into a fund, is then invested, and attracts 'concessional' tax rates. Your employer will suggest a fund for you to use, but, in most cases, you have the right to choose a fund for your superannuation.
2. Personal contributions
In addition to the compulsory superannuation you receive from your employer, you can choose to make personal contributions, up to certain limits. Generally this money is paid from your after-tax earnings, the benefit is that it will be invested with your other superannuation and the profits from your investments will generally be taxed at 15%.
For people under 50 years of age, the maximum amount you can voluntarily pay into your superannuation fund is $25,000 per year. After that, contributions are taxed at 31.5%.
3. Federal government co-contributions
For lower income earners, the government will match any voluntary payments you make into your superannuation fund up to $1000 - as long as you earn less than $61,920 before tax. The ASIC Moneysmart Super Co-contribution Calculator shows you how much the government will co-contribute when you make a voluntary superannuation payment.
4. Salary sacrificing
Another popular way to boost superannuation savings, particularly for high-income earners, is salary sacrificing. Under this arrangement, your employer pays a portion of your income as additional superannuation rather than giving it to you as salary. This amount is taxed at 15%, rather than the income tax rate, which could be 40% or higher.
Choice of Super Fund
Apart from some specific industries, most people working in Australia can choose where their superannuation will be paid. Your employer must provide what is known as a 'Standard Choice Form' for you to fill out with the details of your superannuation choice. You my be able to choose from:
1. The fund used by your employer (the default fund)
2. An industry fund (which specializes in people from a certain industry sector)
3. A retail fund
4. A self managed superannuation fund.
When joining a fund, you select the strategy the fund to use when investing your money. Options include growth, balanced, conservative or cash. Generally speaking, the higher the risk, the higher the return. The funds provide descriptions of each investment option, however, if you are still uncertain you may want to consult a financial adviser. Our partner ANZ has financial advisers who can assist, find out more.
Can I change funds?
You can also decide to switch funds (move to another one) at a later time, although in some cases there may be exit fees and other costs involved. You should take the time to research which one is right for you.
For an overview of the different types of funds you may want to take a look at Moneysmart.
Another way to manage your super is through 'superannuation accounts', which allow you to see your superannuation alongside your everyday banking through your internet banking. These types of funds are designed to be relatively simple to understand. Our partner ANZ operates such a fund, find out more.
Should I join more than one fund?
If you have more than one job, it may seem easier to have your superannuation paid into whichever 'defaul't fund is operated by your employers. However, it’s a good idea to only join one superannuation fund, as this will save you from paying administration fees across multiple funds.
Sadly, there are millions of dollars of lost superannuation in Australia. In many cases it is because people have switched jobs and forgotten to take their super with them. However, in most cases you can choose your own fund and you can use the same fund for all your employers. You can also consolidate all your superannuation funds into one fund that you prefer.
What if I leave Australia?
If you are a temporary resident and plan to leave Australia, you can access your superannuation when you go. It is important to choose a fund where this will be an easy process.
Our partner ANZ has more information on Superannuation and how you may want to invest, particularly if you plan to move back home in the future, find out more.
Learn more about Australian Super
To learn more about the rate of superannuation and the planned increases, visit the Australian Tax Office website.