Personal superannuation, commonly known as ‘super’, is money that’s put aside and saved while you’re working.
Australia’s super system looks similar to funding retirement in Western Europe.
However, one important difference is that contributions are not paid to the public purse but to almost 200 private insurers and superannuation funds.
Laura Wright is the Acting CEO of NGS Super, a fund for teachers and community workers.
These saving are separate from modest payments provided by the age pension which serves as a safety net for all Australians.
There are many other ways of saving money for retirement but superannuation funds have special benefits.
“There’s obviously many ways you can save for retirement, you can put money in the bank, you could buy shares and property but the government actually encourages savings through super because they give these savings favourable tax treatment. And the other important aspect of super is that it is compulsory for employers to pay superannuation on what you earn unless you earn under 450 Dollars per month.”
Currently, an employer must pay an amount equal to 9.5 per cent of salary into an employee’s super fund account.
By 2021 this amount is expected to increase to 10 per cent and then again to 12 percent in 2025.
But it’s not only employers who make super contributions - employees can contribute too.
And small personal contributions made early in life can have significant benefits when retirement comes around, says Laura Wright.
“Each week you say I have one less cup of coffee and I put $3.50 fifty into my superannuation account and you start in your early 20s and you do that every week until your retirement age, let’s say around 60, that $3.50 per week will give you an additional estimated about of 25 thousand dollars. “
Individual contributions to super funds are pooled with other members' money
and invested by professional investment managers in various ways.
The annual investment gains are then distributed among the members of the fund.
When the time comes to retire, the money saved in a super fund can be taken as a lump sum, a regular income stream, or a combination of both.
Most employees can choose which fund they'd like their super contributions paid into.
But some industrial awards specify a fund that super must be paid into.
Consequently, changing jobs can result in having more than one super fund.
Keeping your superannuation in one account saves money on multiple fees.
READ MORE
Settlement Guide: Superannuation
