What is Superannuation?

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If you are currently employed in Australia, your employer should be paying a proportion of every wage you receive into a superannuation fund. This may seem like another tax on your earnings, but it isn't. So what is the purpose of super, and how does it benefit you?

 

Superannuation is a long-term savings plan designed to provide an income after retirement from paid work.
Although retirement may seem like a long way off when you're young, it is worth remembering Australia's average life expectancy currently stands at 82 years old, according to the Australian Institute of Health and Welfare.

"There are about 15 to 20 years of retirement for which money has to be saved to live on."

 That means there are about 15 to 20 years of retirement for which money has to be saved to live on.
While the Federal Government pension may be accessed by most, some regard the payment as not enough to provide an enjoyable lifestyle. University of Sydney Business School's Dr Michael Rafferty explains how superannuation works.

 

"Most apprentices and trainees are also entitled to superannuation."

"Every person that is over 18 years of age and earns more than about $450 per month has 9.5% per cent currently taken out of their salary, and that's expected to rise to about 12 per cent gradually over the next few years. That money goes into what is called a superannuation fund, and that money is then invested in the stock market, property and so on, and that's meant to than invested in stock market and property and so on and that's meant to earn a rate of return which helps to supplement and grow that pool of savings over time."

Dr Rafferty says most apprentices and trainees are also entitled to superannuation.

"The real test is whether or not you're earning over that $450 threshold, so you would expect that means, typically, that all apprentices and trainees who are earning over the $450 would be paid superannuation and that comes out of their pay. It should also be listed on people's pay slips every week, so you should be able to look at your pay slip and see the deduction is coming out to know that you are getting it."

"17 million Australians currently contribute to a superannuation account."

While 17 million Australians currently contribute to a superannuation account, Dr Rafferty says some miss out on this saving because of different types of work.

"There are people, who won't get paid superannuation, and those are people who are getting paid cash-in-hand or a small amounts of money in part-time jobs - so it's $450 in that particular job you're in. So if you've got three or four jobs - four part-time jobs -- you may not be getting superannuation in any of them, but, in general, many, many millions of Australian workers are getting paid superannuation."

"Banks or insurance companies have their own superannuation fund or wealth-management divisions."

The Association of Superannuation Funds says as at December 2015, Australia's superannuation savings were worth just over $2 trillion dollars. Dr Rafferty explains who manages this money.

"Some of them are banks or insurance companies that we know, the Westpacs and the Commonwealth banks, they have their own superannuation fund or wealth-management divisions or their industry funds, run on a cooperative basis, and those superannuation funds would typically have a range of investment options. There are some that are low-risk, so they are only invested in government bonds and lower-risk securities, and then there are some that are called 'growth funds' which take higher risks, but they are of course more exposed to market movements."

"Australia has a large number of super funds to choose from, and, in most cases, employees can nominate where their super goes and who looks after their savings."

Australia has a large number of super funds to choose from, and, in most cases, employees can nominate where their super goes and who looks after their savings. If no selection is being made by an employee, the employer will make a choice. Over the course of a working life, super contributions add up, or "accumulate".

There are steps people can take do to boost their superannuation. Dr Rafferty warns not all super funds are the same and it's important to check their performance.

"Diligent savers can get a bonus from the government."

"If you are in the wrong fund or in the wrong option, you could lose you know four-five hundred thousand dollars in the life of that fund compared to your peers, who are in a lower-cost fund or a better-performing fund - so it does matter. Of course, most people don't worry about it until they get into their 50s and 60s, and, by then, many of the differences are already locked in. So it's important that you do have a good look straightaway."

"Consolidating super accounts in another way to boost savings."

The biggest gain comes from personal extra payments into super, meaning diligent savers can get a bonus from the government. The Super Co-Contribution applies for low and middle income workers who earn less than $51-thousand dollars per year and makes extra super contributions the government tops-up another $500 per year tax-free. Consolidating super accounts in another way to boost savings. The Australian Tax Office says in June 2015 45 per cent of Australians had more than one super account, with 11 per cent having 3 accounts. 
The Australian Securities and Investment Commission says consolidating super saves on fees, reduces paperwork and makes it easier to track super funds.

"If you do go back to your home country or another country after you accumulated some retirement savings, you can actually make an application to take your entire superannuation savings with you."

The ATO's MyGov website now allows employees to rollover accounts easily. The age in which Australians can access their super is changing. Dr Rafferty explains.

 "That's a movable feast. It used to be that you could start accessing your retirement savings at 55. Now it's moved up to 57, but the mandatory retirement age is moving upwards gradually, so you can expect to be working through to about 70."
And can Australians born overseas spend their retirement in their original homelands?

"Yes, they can.  And indeed, If you do go back to your home country or another country after you accumulated some retirement savings, you can actually make an application to take your entire superannuation savings with you. Indeed, for many people who gained citizenship, you can also make some claim around the age pension as well."