What Is Superannuation, Why Is Super Important?

Hi, today we are talking about superannuation and I will answer the following questions for you:

1. What is super and how does it work
2. Who can have super?
3. How can you start a super fund?
4. What happens to your money once it is contributed?
5. When can you access super?

What is super and how does it work?

Superannuation, or super, is a form of savings for your retirement with money being contributed by your employer or you personally, if you choose to do so, over your working life, so you can enjoy retirement income, once you finish working.

Who can have super?

All Australian over age of 18 that are employed, with an income greater than $450.00 per month, will automatically receive employer contributions to their super fund. This is called Superannuation Guarantee (or SG) and employers are legally bound to contrite 9.5% of your gross income – that includes bonuses, commissions, and loadings.

If you are below 18, you might be still eligible for super contributions if you earn more than 450.00 per month and work at least 30 hours a week.

Since 2013/14 financial year, people over age of 70 who are still employed, are also eligible for the SG.

The rate of employer contributions are supposed to be increasing by 0.5% a year from July 2021 until it reaches 12% in 2025/26, but due to Covid outbreak and many businesses suffering financially, the Australian government is considering postponing the increase of SG.

If you run your own business via Pty/Ltd structure (company structure), you are required to pay SG for yourself to your super fund, as legally you are an employee of your own company.

If you are self-employed – your super contributions are entirely voluntary.

You can also make additional voluntary contributions throughout your working life.

This should be the main financial focus when you are coming closer to retirement,  which is majority of my work to introduce to those clients strategies how to your savings in the most:

–Tax-effective,
–Super-effective and
–Age Pension effective

way to optimise all those benefits.

How to open super account?

When you start your new work, your employer is required to provide you with the “default” fund, but very rarely I would recommended to accept such a fund, as often they are plain vanilla, with not a great deal of investment or insurance choices that may not meet your needs.

You can however ask your employer to make contributions to super of your choice.

This way you can have one super fund that receives all contributions, no matter how often you change employment, or even if you have couple of jobs on the go.

Just make sure that you do your due diligence and a full research, as there is no such thing as one size fits all –  no  matter what industry funds are telling you on TV. 

What happens to my money once invested into super fund?

When choosing your super, the decision is not only what super fund you want, but you also have to decide, how money is to be invested for you. Again, do your due diligence from the perspective of:

–fund choices,
–investment risk,
–fees and charges,
–flexibility,
–insurance if applicable,
–a degree of diversification you are able to introduce to your investment portfolio.

How can I contribute to super?

This is actually a very big topic and I have written an article about it and created a separate video, as it deserves its own time and its own explanation.

When can I access my super savings?

Generally, you need to wait until you retire. Investing in super is a kind of agreement, that you forgo access to your savings for very generous tax treatment of your savings. Therefore, your savings are being “preserved” until such time that you meet certain rules of withdrawals:

– You meet our preservation age
– You retire from work
– In case of financial hardship
– You become disable
– You are terminally ill
– You die

Superannuation is a great environment to keep your long-term savings. Not only it is concessionally taxed, therefore very beneficial for growing your nest egg, but as much as some might not be happy about locking money away for that many years, for many, this is just about the only way to actually make some savings, otherwise we have tendency to spend it all.

Feel free to check out the article about superannuation tax and types of contributions you can make to your super and why some are better than others.

If you prefer, you can watch the video explaining tax and types of super contributions, so you can decide which one is the best for you.

by:  Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement