Are you eligible for superannuation?
You’re generally eligible for super if you’re employed (regardless of your income), aged 18 years or over, or under 18 and work more than 30 hours a week. This includes employees who work full-time, part-time or on a casual basis, as well as those on a temporary visa.
How your superannuation is invested
Many of the principles of investing in super are the same as investing outside of super. The main difference is how your investments are taxed: you generally pay less tax on investment earnings inside super.
If you are a member of an industry, retail, corporate or public sector fund, your money is combined with other peoples’ super to buy investments. This enables your super to grow in two ways:
- growth in the value of your investments called capital growth
- reinvested income such as rent or dividends.
If you don’t actively choose how you want your money invested when you join a fund, you will be placed in a default investment option which may or may not be in line with the level of risk you are willing to accept to achieve your investment goals.
It’s important to regularly assess how your super’s invested and make changes if necessary. For example, taking a more conservative investment option, means you’ll have higher exposure to cash and fixed-income assets as they offer less risk than shares and property.
What are the main types of superannution funds?
Superannuation funds can be broken down into five different types:
Corporate/employer-sponsored super funds
Some medium to large businesses have their own super fund which is only available to their employees. They can offer tailored fee and insurance arrangements, and a wide range of investment options.
Industry funds
Industry funds were originally established to support employees within a particular sector but most are now open to everyone. They stand by a non-profit, member-first ownership model and re-distribute profits from investments directly to members' accounts.
Retail funds
These funds are run by banks, financial institutions or investment companies, designed to give members a broad array of investment options. The company that owns the fund generally aims to keep some profit which is paid to shareholders.
Public sector
Designed for people working in the public sector, these funds have limited investment options but low fees. Profits remain within the fund for the benefit of members.
Self-Managed Super Funds (SMSFs)
SMSFs are a small fund with a maximum of six members. SMSFs enable you to have complete control over how your retirement savings are invested—a private super fund that you manage yourself.
Personal superannuation contributions
The 11.5% of your salary that your employer contributes into super may not be enough to sustain the lifestyle you currently have, or the one you wish to have, during your retirement.
There are a range of strategies you can implement to improve your retirement savings, like putting a little extra money into your super while you’re still working.
Personal super contributions—those made from savings or your take-home pay—may be tax deductible. These tax deductions can be claimed against your assessable income when you lodge your tax return.
Personal deductible contributions and employer super contributions are concessional contributions which are capped at $30,000 per financial year unless you are eligible to use unused concessional contribution caps from the last five financial years. If you contribute over this amount, the excess amount will be included in your taxable income.
Tax on superannuation investment earnings
Your super fund pays tax on any income or profits it makes from your investments. The tax is generally reflected in the daily unit price for each investment option or on a member’s transaction statement.
- Super account investment earnings are taxed at a rate of up to 15%
- Transition to retirement pension investment earnings are taxed at up to 15%
- Retirement pension account investment earnings are not taxed
How to look after your superannuation
There are many ways you can look after your retirement savings to have the best possible future.
- Regularly contribute: the more you contribute to super over time, the more your savings will grow through compound returns.
- Salary sacrifice: consider sacrificing a portion of your pre-tax income into super to reduce your taxable income and boost your retirement savings
- Consolidate your super: if you have multiple super accounts, consider consolidating them into one fund. You would avoid paying multiple fees and it will be easier to track your investments
- Keep track of lost super: the Australian Taxation Office (ATO) can assist you in locating and consolidating any lost super or unclaimed super funds you may have
- Check investment options: understand your super fund's investment options and risk profile. Choose the investment strategy that aligns with your risk tolerance and retirement goals
- Review fees and charges: compare fees and charges across different super funds. Lower fees can significantly impact the growth of your super balance over time
- Review insurance cover: check your insurance cover to ensure it meets your needs
- Plan for the long term: remember that super is a long-term investment so it’s important to avoid making rash decisions based on short-term market fluctuations
- Seek professional advice: if you're unsure about managing your super, consider seeking advice from a licensed financial adviser.
Frequently Asked Questions about superannuation:
Can I withdraw my super at any time?
No. You must be retired and have reached your preservation age—preservation age is 60 from 1 July 2024. You can also draw your super if you leave work after age 60 on or after you reach age 65.
There are some circumstances however, where you may be able to access it early.
What is the disadvantage of super?
Your super savings will generally be locked away until you’re retired and have reached your preservation age, leave work after age 60 or reach age 65.
How does super get paid out?
When you retire, you can withdraw your super in three ways. You can access it as a lump sum payment, start an income stream. This allows you to access it as a regular income, in a similar way to if you were still working. You also have the option to do both.