Source: Freepik
Superannuation, commonly known as “super,” is a compulsory Australian retirement savings plan. It is one of the best ways to save money in a consistent and tax-effective manner. While many people understand the basic benefits of a super fund, they are not familiar with how it works.
Here’s a short guide explaining how super funds work and how they can benefit you:
Contributions
Let’s start with the most obvious question: “Who contributes to a super fund?” Employers are legally obligated to contribute a certain percentage of an employee’s salary into their super account. This is known as the Superannuation Guarantee (SG).
As of July 2024, the minimum SG rate is 11.5% of an employee’s ordinary time earnings (OTE). This is scheduled to increase to 12% in July 2025. Employer contributions are typically concessional and are taxed at 15%. For most people, this is lower than their marginal tax, which means you will pay less tax while boosting retirement savings.
In addition to the traditional employer contributions, there are numerous ways to maximise earnings. Examples include:
Personal Contributions
Employees can choose to make additional contributions to their super fund from their personal savings accounts. This will help you save faster and reduce your tax burden.
Government Co-contributions
Low- and middle-income earners can apply for government co-contributions. This is quite similar to social security benefits.
Investment
Your super fund will grow through investments. Members can choose from a range of investment options, such as:
- Stocks
- Bonds
- Shares
- Property
Depending on your retirement goals and risk tolerance, you can also choose an investment strategy. Many super funds employ professional investment managers to help members understand their options. Carefully examine an institution’s investment policies to find the best super fund.
Accessing Funds
The fund withdrawal policy for super funds is pretty straightforward. Members can access their funds once they reach a certain retirement age, typically 60-65. You can withdraw it as a lump sum or as periodic payments.
In case of severe financial hardship or terminal medical condition, members can request early access. Moreover, if you’re unable to work due to an unfortunate situation and need retirement savings, the super fund will assess your condition before making an exception.
Fees and Insurance
To open and maintain a super fund, you need to pay a certain fee. Most funds deduct a monthly fee from the member’s balance. Many super funds offer insurance coverage. Common types include:
Life Cover – This pays a lump sum to your beneficiaries when you die or face a terminal illness.
TPD Insurance – Total and Permanent Disability (TPD) insurance pays you benefits if you become disabled and can’t work.
Income Protection Coverage – If you can’t work due to a temporary disability or illness, a super fund will pay you a regular income for a specified period.
Maximise Benefits
Super funds provide more than just investment returns. Many super funds offer additional perks, such as reduced healthcare costs, mortgage payments, and travel expenses. By maximising such benefits, you can save more quickly and reach financial goals.