It’s never too early to start thinking about your Super – here are the basics of Australian superannuation.
Over the past decade, Australian millennials like yourself have been getting involved with superannuation. From 2007 to 2017, millennials’ share of super fund balances doubled from 6.4 per cent to 14.6 per cent, according to Roy Morgan. That said, McCrindle reports that millennials account for over one-third of the Australian workforce – so there’s still further to go.
If you’re new to the idea of superannuation, it can be an overwhelming yet important topic to tackle. To help you understand where you stand, read on below where we cover all the basics of Australian super.
What’s superannuation good for?
Superannuation is a system designed to help Australians save for retirement. It’s tax-effective and strictly enforced, meaning any money that goes into your super fund is taxed at a lower rate than your regular income and is generally locked down until you satisfy release conditions (usually reaching preservation age and retiring).
In short, superannuation is good for:
- Saving: Because your super balance is more or less inaccessible until retirement, you’re forced to save and protect your future. Also, your employer is required to pay 9.5 per cent of your ordinary time earnings to your fund as a “super guarantee” (SG). Super may also help you save for a house by way of the First Home Super Saver (FHSS) scheme.
- Investing: Money in your super is invested on your behalf by professional fund managers, so it accrues interest to grow your savings faster. Understanding super is also a great way to get your head wrapped around investing, should you later want to take up private investments.
- Insurance: Most super funds offer life insurance, total and permanent disability cover and income protection. So, if you have a super account, you probably have basic insurance cover for any worst-case scenario.
- Tax relief: A number of tax concessions can be taken advantage of to grow your nest egg without losing much to tax.
How to pick the best super fund for you
Most people can choose a superannuation fund to have their employer make super guarantee and optional salary sacrifice contributions into. If you don’t select a fund, your employer will pay into a default MySuper account. Therefore, it’s possible you have a super account even if you don’t know about it.
If you’d like to choose your own super fund, you can do this at any time, but can only change once per year. When picking a super fund, you should investigate:
- Fees: Be sure to understand what you’ll pay out of your super in fees, such as administration and advice charges. Remember to check if your current fund enforces an exit fee.
- Performance: Look for consistent performance – consider a fund that’s done well over the last five years, not just last year’s top performer.
- Investments: As a younger person, you may be more comfortable with higher risk investments as you can ride out any dips in performance. You might also consider the ethics and sustainability of a fund’s investments.
- Insurance: A new fund might offer greater insurance coverage, but be sure to learn what it will cost you.
- Services: Some funds may offer investment advice or other services at an additional cost.
How do you know your super is on track?
By 30 years old, most Australian men have saved $23,712 in super, or $19,107 for women, according to the Association of Superannuation Funds of Australia (ASFA). If you’re far off these benchmarks, don’t stress. Start by finding out what you have and tracking down any lost super via the Australian Taxation Office.
Next, download our Super & Savings Benchmarks worksheets to figure out where you stand and what your next step should be.
Source: Invest Blue
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The information provided in this article does not constitute specific advice. For further information, you should contact your professional adviser.