Superannuation in Australia is a big part of financial planning. It’s a system to help you save for retirement during your working life. Despite its importance, many people find superannuation confusing and hard to understand. This guide will help demystify the Australian superannuation system and give you valuable insights to manage your retirement savings account.

What is Super?

Superannuation is a long term savings plan that builds up funds for your retirement. It’s compulsory in Australia, where employers have to contribute a percentage of their employees’ earnings into a superannuation fund. Superannuation funds can be grouped into broad categories, each with different benefits and investment options. These contributions plus any extra you contribute and investment returns grow over time to give you an income in retirement.

How does Super work?

Superannuation is a retirement savings plan to help Australians save for their future. It’s a long term investment where you contribute a portion of your income to a fund which is then invested to grow over time. The goal of superannuation is to give you an income stream in retirement to help you maintain your lifestyle and enjoy your golden years.

In Australia, superannuation is compulsory for most employees, with employers having to contribute a minimum of 11.5% of your salary to your super fund as of 2024. This will increase to 12% by July 2025. You can also make extra contributions to your super fund to boost your retirement savings. By understanding how super works and managing your contributions you can build a more secure future and a comfortable retirement.

Superannuation System Components

1. Employer Contributions:

The Superannuation Guarantee (SG) is the foundation of the system. As of 2024, employers have to contribute 11.5% of your ordinary time earnings to your superannuation fund. This will increase to 12% by July 2025.

2. Types of Superannuation Funds:

There are several types of super funds to choose from:

• Industry Funds: Originally for workers in specific industries but now often open to anyone.
• Retail Funds: Run by banks or investment companies.
• Public Sector Funds: For government employees.
• Corporate Funds: Set up by companies for their employees.
• Self-Managed Superannuation Funds (SMSFs): Privately managed funds with up to four members who are also trustees. In addition to investing, SMSFs can also offer other services such as annual audits and management reports.

3. Investment Options:

Most super funds have a range of investment options, including:

• Cash
• Fixed interest
• Property
• Australian shares
• International shares
• Balanced (a mix of growth and defensive assets)

Good accounting practices are important to manage these investments and ensure compliance with regulations.

4. Extra Contributions:

You can add to your super by making extra contributions:

• Salary sacrifice: Contributing pre-tax income to your super.
• After tax contributions: Adding money from your take-home pay or savings.
• Government co-contributions: The government will match your after tax contributions if you’re a low or middle income earner.

5. Preservation Age and Accessing Your Super in Retirement:

Your preservation age (between 55 and 60 depending on your birth date) is when you can access your super if you’re retired or have started a transition to retirement strategy.

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Selecting a Super Fund

Choosing a super fund can be overwhelming with so many to choose from. When selecting a super fund you should consider fees, investment options and performance.

Professionals Australia suggests you consider the following when selecting a super fund:

• Fees: Look for a fund with lower fees, they can eat into your retirement savings over time.
• Investment options: A fund that offers a range of options, including shares, property and fixed interest.
• Performance: Research the fund’s past performance but remember past performance is not a reliable indicator of future performance.
• Services: The level of service and support offered by the fund, including online access and financial planning advice.

By considering these factors you can choose a super fund that suits your financial goals and helps you manage your retirement savings.

Super and Your Employer

As an employee, your employer must contribute to your super fund on your behalf. This is called the Superannuation Guarantee (SG) and is currently 11.5% of your salary and will increase to 12% by July 2025.

In addition to the SG, some employers may offer extra super benefits such as salary sacrifice or matching contributions. Make sure you understand your employer’s super policies and take advantage of any extra benefits on offer. By maximising these contributions you can add significant value to your retirement savings and work towards a more secure financial future.

1. Consolidate Multiple Accounts

If you have super accounts with different funds, consolidate them to avoid paying multiple sets of fees and losing track of your money.

2. Review Your Investment Strategy

Review your investment options regularly to make sure they align with your risk tolerance and retirement goals. Generally younger people can afford to take on more risk, while those closer to retirement may want a more conservative approach.

3. Extra Contributions

Even small extra contributions can add up over time.

4. Check Your Insurance

Many super funds offer life insurance and total and permanent disability (TPD) coverage. Review your policies to make sure you have the right cover without paying for unnecessary cover.

5. Stay Informed

Superannuation laws and regulations change. Keep up to date with any changes that may impact your retirement strategy.

6. Seek Advice

Consider talking to a financial advisor who specialises in super to help you make informed decisions about your retirement savings.

Lower Fees and Performance:

Fees:

• Administration fees
• Investment fees
• Advice fees
• Insurance premiums (including health insurance) can also impact your super balance.

Performance Metrics:

When reviewing your fund’s performance look at:

• Long term returns (5-10 years) not short term fluctuations
• Performance compared to similar funds
• Returns after fees are deducted.

Super Mistakes

When it comes to super there are several common mistakes people make. These include:

• Not contributing enough to their super fund
• Not reviewing their investment options regularly
• Not considering fees and costs
• Not seeking advice

Tax

Contributions

• Concessional (before-tax) contributions are taxed at 15% within the fund.
• Non-concessional (after-tax) contributions are not taxed when you enter the fund.

Earnings

Earnings in your super fund are generally taxed at 15%. Investments in places like the Middle East may have different tax implications that need to be considered as part of your overall strategy.

Withdrawals

Withdrawals after 60 are tax free. However, there may be tax implications for withdrawals before 60 or in certain circumstances.

Super and Estate Planning

Superannuation is a key component of estate planning as it can be a tax effective way to pass on wealth to beneficiaries.

When thinking about super and estate planning make sure to:

• Review your super fund’s death benefit nomination to ensure your wishes are met.
• Consider setting up a self managed super fund (SMSF) if you want more control over your investments and estate planning.
• Seek advice from a financial planner or accountant to navigate the super and estate planning complexity.

By being informed about super and making good decisions you can have a secure financial future and enjoy your retirement with peace of mind.

Super for Self-Employed

If you’re self-employed you don’t have to make super contributions for yourself but you should think about your retirement savings. You can contribute to a super fund personally and may be eligible for tax deductions on these contributions.

Recent Changes and Coming Up

2024 and beyond:

• The SG rate increase to 11.5%
• Contribution caps and bring-forward changes
• Work test changes for older Australians making voluntary contributions

Looking ahead:

• Further SG rate increases
• Closing the gender gap in super
• Improving retirement income products

Conclusion

Super is a powerful way to build your retirement savings but it needs to be managed and understood. By being informed, reviewing your super regularly and seeking advice when needed you can get the most out of your super and retire comfortably.

So get super today. Tomorrow will be too late.

Now. Not later.