Superannuation – or, as most Australians call it, “super” — is simply a system of putting part of your money away as you earn it, to keep for when you are retired.
For many Australians, super has helped ensure they have enough money to live on after they’re no longer working. It’s important to understand how super works, and how it can help you to plan a secure financial future.
Super: It’s the law
Almost every Australian employer is required by law to place nearly 10% of each employee’s wages into a superannuation fund – a pool of money that’s set aside and invested until you retire, or reach the age of 65. Altogether, Australians have more than $2 trillion ($2,000,000,000,000) invested in superannuation.
You are encouraged to add some extra money from every pay packet, too, to help your super grow faster. The sooner you begin putting money into super, the more you are likely to have when you retire. Remember, your retirement income may need to last 20 years or longer.
The money you place in your super fund is usually taxed at a lower rate than your regular wages. This means you keep more of your own money, even though you can’t spend it until you decide to retire, or turn 65.
Making your money work for you
Investment experts at your superannuation fund invest the pool of money in different areas, where they believe it will have the best opportunity to grow over time. They may invest your super in company shares, property (like shopping centres or office buildings), infrastructure (like freeways or airports), or a number of other types of assets. You can usually choose how you want your super fund to invest your money – in investments that may rise and fall in value as the market changes, or in an option where returns may be lower, but are likely to be more stable.
If you earn a lower income, you may also receive a contribution from the government to help build up your super savings.
It’s important to remember that any money you bring into Australia from a foreign superannuation fund may be subject to tax here. Go to the Australian Taxation Office website for more details.
If you are living and working in Australia only temporarily, there are different rules about how your super is treated and when you can gain access to it. You can find more information on the Australian Taxation Office website: http://www.ato.gov.au/Individuals/International-tax-for-individuals/In-detail/Super
Finished work? Super!
When the time comes for you to retire, you’ll have access to your money. You may wish to take your super all at once (called a ‘lump sum’) but most people choose to take a little at a time (called an ‘income stream’), keeping most of their super still invested, so that it continues to earn more money for them.
Depending on your age, you may even be able to receive some of your super while you are still working. This is called a ‘transition to retirement’ plan. You can either use this money as extra income (so you can work fewer hours) or you can take advantage of super’s tax savings help build up your super balance for when you stop working entirely.
If you were born after 1 July 1964 you can begin drawing money from your super once you turn 60. Any lump sum or income stream payments you receive from super may be tax-free after 60 as well. Also, when you take an income stream after retirement, the earnings on the money remaining in your income account are exempt from tax.
Super is designed to help ensure you have enough money to pay for your expenses in retirement, when you no longer have a regular income. Many retired people will also receive an age pension from the government to help them meet the cost of living.
Insurance in super
Your super fund may also provide you with death, disability, and income protection insurance, with your premiums automatically deducted from your super balance. Buying insurance within super is often less expensive than buying it yourself, because super funds purchase insurance policies in bulk.
Some super funds automatically accept you for cover without requiring a health check, and you can usually choose the amount you want to be covered for. No matter who you buy your insurance from, it’s important to ask questions and to understand exactly what your insurance covers.
Australia’s biggest superannuation fund is AustralianSuper, which manages more than $110 billion of its members’ money. More than two million Australians have their super invested with AustralianSuper.
AustralianSuper is what is known as an ‘industry’ fund, which means we are run only to benefit members.
Other funds, which are called ‘retail’ funds, are often owned by banks who pay some of their profits to shareholders. All funds charge members fees for investing their money, but the fees charged by industry funds can be lower than those charged by retail super funds.
Because AustralianSuper manages a very large amount of money, it’s able to use its size and scale to make major investments at a lower cost than some other super funds.
AustralianSuper has consistently delivered its members strong, long-term investment performance – the Balanced option has earned on average 9.65% a year since the option opened in 1985 (to May 2017).*
As well as low fees and good performance, AustralianSuper offers its members flexibility and choice, with a wide range of investment options; access to discounted banking and health insurance; free seminars, education and communication programs; and simple online management of your account.
Visit http://www.australiansuper.com/welcome-sa for more information about joining AustralianSuper.
Get professional advice!
Finally, it’s always a good idea to ask for advice from a properly qualified financial planner. Many super funds employ financial planners to help their members, often at a low cost or even free.
More information about superannuation is available at moneysmart.gov.au or ato.gov.au
* Investment returns are not guaranteed. Past performance is not a reliable indicator of future returns. This article has been sponsored by AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, the Trustee of AustralianSuper ABN 65 714 394 898. The article contains general information and you should consider your personal financial situation before making a decision. Information correct as at June 2017.