A helpful guide to understanding the basics of super.
Superannuation, commonly known as ‘super’, is money set aside while you’re working so you’ll have money for retirement. Your money is put into a fund, where it’s invested on your behalf by a trustee, to help you earn returns and grow your savings.
The amount of super you’ll end up with when you retire depends on a number of factors, including:
- how much has been made in contributions
- how long you super’s been invested
- the type of investment option you’ve selected
- the investment returns your money has earned, and
- the amount you’ve paid in fees and insurance premiums
Many people think of their super as an investment that takes care of itself but the choices you make about your super and investments could make a big difference to your quality of life in retirement.
What are super contributions?
A super contribution is money that’s deposited into your super account, either as an ongoing payment or as a one-off. Usually made by you or your employer.
What is the superannuation guarantee?
Your employer is required to contribute 10.5% of your before-tax income into a super fund. These payments are known as super guarantee (SG) contributions (also known as employer super contribution), and they form the foundation of your super.
Employer super contributions are taxed at a lower rate than most income tax brackets, so it’s important to provide your tax file number (TFN) to your super fund to avoid extra tax being taken out. You’ll also need to provide your TFN if you want to make any personal super contributions.
How can I make other contributions into my super?
In addition to your SG contributions, you can also contribute more money to your super account in the form of voluntary contributions. You can make these contributions using either before-tax or after-tax money. In many cases, they’re taxed at a lower rate than your income, so they can be a good way to build your retirement fund while being tax-efficient.
Keep in mind that there are caps to the amount you can contribute depending on your age and circumstances.
What types of super funds are available?
There are a number of different types of super funds on the market, including:
- Retail super funds—typically owned and run by financial services companies and open to anyone to join.
- Industry super funds—usually tied to a specific industry. Some are open to anyone, while others are only open to employees in that industry.
- Corporate super funds—typically arranged by a company for its employees. Some are operated by the employer (under a board of trustees), while others outsource their operation to a retail or industry fund.
- Public-sector super funds—usually only open to employees of federal and state government departments.
- Self-managed super funds (SMSFs)—private superannuation funds that are managed by members (one to six people).
In most cases, you can choose which fund you’d like your super to be invested with – so it pays to do your homework and find a super fund that offers the investment options and features you’re looking for.