Super: A guide for Australians

Superannuation, or "super," is a key part of financial planning for Australians. It's designed to help individuals save money for their retirement. Despite its importance, many people don't fully understand how super works or how to make the most of it. This guide will explain superannuation, how employer contributions work, and the benefits of contributing extra early in your career.

Why Should I Care?

Super might not seem important if you're young, but it's a powerful way to build wealth over time.

What is Superannuation?

Superannuation is a system where a portion of your income is saved in a fund that you can only access when you retire, also known as your preservation age with few exceptions. Its main goal is to provide financial security in retirement, reducing the need for the Age Pension.

Employer Contributions

Employers must contribute a percentage of your earnings into your super fund. As of July 2024, this rate is 11.5%, and it will increase to 12% by July 2025. This helps you save more money for retirement over your working life.

Salary Sacrifice and Co-Contributions

You can also add extra money to your super through salary sacrificing. This means you contribute part of your pre-tax salary to your super fund, lowering your taxable income. You can currently contribute up to $30,000 per financial year this way. These contributions are taxed at 15%, which is lower than most income tax rates, making it a cost-effective way to save for retirement.

The Power of Starting Early

Starting early with extra contributions can greatly increase your super balance. Here’s why:

Compound Interest: Your money earns interest on both your initial contributions and the interest that accumulates. The earlier you start, the more your money grows.

Tax Benefits: Contributions through salary sacrifice are taxed at 15%, which is usually lower than your income tax rate. This means more money goes into your super fund.

Government Incentives: The government offers benefits like the Low Income Superannuation Tax Offset (LISTO) and co-contributions for eligible earners, boosting your super savings.

Long-Term Security: Building a substantial super balance ensures better financial security and independence in retirement, reducing reliance on the Age Pension.

Choosing the Right Super Fund

Selecting the right super fund is crucial. Here’s what to look for:

Performance: Check the fund’s long-term performance. Past performance isn’t a guarantee, but it shows how well the fund manages investments. There are a lot of options, consider looking at your current superannuation fund rating using the Australian Government APRA Annual Performance Test, private sites such as Chant West or a more personalised solution such as Super Fierce.

Fees: Look at the fees charged, including administration, investment, and insurance fees. Lower fees mean more money stays in your super.

Investment Options: Choose a fund with investment options that match your risk tolerance and goals. If you’re already investing in shares, property or other assets consider how superannuation can help you diversify when selecting your asset options.

Insurance: Most super funds offer protection products such as life insurance, total and permanent disability (TPD) insurance, and income protection. Ensure the cover suits your needs.

Services and Support: Evaluate the fund’s customer service, financial advice, educational resources, and online tools.

The Benefits of Insurance Through Super

Many super funds include insurance. Here are the benefits:

Cost-Effective: Insurance premiums are usually cheaper within super due to bulk buying power.

Convenient: Premiums are automatically deducted from your super balance, so you don’t have to worry about separate payments.

Peace of Mind: Insurance through super provides financial security for you and your family in case of death, serious illness, or injury.

Default Cover: Many super funds offer default insurance cover without requiring a medical examination, making it easy to get basic cover.

Practical Tips for Maximising Your Super

Review Your Super Fund: Ensure it has competitive fees and strong performance. Regularly compare different funds.

Consolidate Your Super: If you have multiple super accounts, consolidate them to avoid multiple fees.

Seek Financial Advice: A financial advisor can help tailor a superannuation strategy that suits your individual circumstances and retirement goals.

Conclusion

Understanding and managing your superannuation is essential for a comfortable retirement. By taking advantage of employer contributions, salary sacrificing, and starting early, you can significantly boost your super balance. Start now and make regular contributions, no matter how small, to enjoy the long-term benefits.

Start planning today, and your future self will thank you!