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Super simple - A guide to superannuation

James Ireland • Jul 31, 2023

Super simple - A guide to superannuation

Introduction:

Superannuation, often referred to as "super," is a vital component of financial planning and retirement preparation for millions of individuals worldwide. 

In this blog post, we will explore the ins and outs of superannuation, shedding light on what it is, the various types of contributions, and the investment options available within a superannuation fund. Whether you're a young professional starting your career or someone nearing retirement, understanding superannuation is crucial for a secure financial future.


What is Superannuation?

Superannuation is a government-initiated retirement savings scheme designed to help individuals accumulate funds for their retirement years. The idea is to encourage people to save and invest throughout their working lives so they can enjoy financial stability during their retirement. 
Superannuation is a mandatory program, with employers being legally required to contribute a percentage of an employee's salary to their superannuation fund.

Types of Contributions into Superannuation
  1. Employer Contributions (Compulsory Super Guarantee): Employers are typically required to contribute a percentage of their employees' earnings to their superannuation fund, known as the "Superannuation Guarantee" (SG). Under the superannuation guarantee, employers have to pay superannuation contributions of 11% of an employee's ordinary time earnings when an employee is: over 18 years, or. under 18 years and works over 30 hours a week.

  2. Personal Contributions (Voluntary Contributions): Individuals can make additional contributions to their superannuation fund voluntarily. These contributions can be made from pre-tax income (known as "concessional contributions") or after-tax income (known as "non-concessional contributions"). Making personal contributions is a powerful way to boost retirement savings and take advantage of potential tax benefits.

  3. Salary Sacrifice Contributions: Some individuals opt to enter into salary sacrifice arrangements with their employers. This means agreeing to sacrifice a portion of their pre-tax salary into their superannuation fund. By doing so, they reduce their taxable income and potentially lower their overall tax liability.

  4. Government Co-Contribution: The government may offer a co-contribution scheme to incentivize lower-income earners to contribute to their superannuation fund. Under this scheme, the government matches a certain percentage of personal contributions made by eligible individuals, providing an added boost to their retirement savings. If you earn less than $43,445 in 2023-24 financial year, are eligible and make a personal (after-tax) contribution, you could receive a maximum of $500. The government will contribute 50c for every $1 you contribute up to a maximum of $500.
Superannuation Fund investment options

Superannuation funds typically offer a range of investment options to suit the diverse needs and risk appetites of their members. These investment options can include:
  1. Growth Funds: These funds invest in a higher proportion of growth assets such as shares and property, which tend to offer higher long-term returns. They are more suitable for younger individuals with a longer investment horizon and a higher risk tolerance.

  2. Balanced Funds: Balanced funds aim to strike a balance between growth assets and defensive assets like bonds and cash. They are designed to offer a mix of potential returns and moderate risk, making them suitable for individuals with a medium-term investment horizon and a balanced risk appetite.

  3. Conservative Funds: Conservative funds focus more on defensive assets, emphasizing capital preservation and providing stable, lower-risk returns. These funds are generally suitable for older individuals or those with a lower risk tolerance.

  4. Single Sector Funds: Some superannuation funds also offer single sector options, such as Australian shares, international shares, or fixed interest funds. These options allow individuals to focus their investments on specific asset classes that align with their preferences and investment strategies.
Which superfund do I choose?

Although many Australians don't see their super as a problem, school systems fail to teach us the key elements of choosing an ideal superfund. To narrow down your choices, there are three core aspects you should be aware of: Fees, Returns, Risk.

Fees

Superannuation funds come with a variety of fees, such as administration charges, Management Expense Ratios, Indirect Cost Ratios and Insurance Premiums. Unfortunately for most Australians these other costs aren't always visible on their super statement; that's why our experts have made it their mission to break down the additional expenses you might be paying without realising. Join us today and get an accurate picture of all your fund costs!

Returns

Returns are ever-evolving and constantly fluctuating, so what may have been a top-performing investment fund in the past could be lagging behind today. Similarly, what might seem like your best option now can quickly become obsolete; that is why it's essential to review your superannuation funds regularly to ensure you remain ahead of the curve and your strategy continues yielding positive performance.

Risk

If you had $50,000 of your hard-earned money on the line, you'd know exactly where it was invested. But do you have any idea how much risk and exposure to the markets your superannuation is subjected to? Surprisingly, most Australians are unaware of their superannuation investments. That's why it's important for everyone to understand what their retirement savings are being used for - don't let yourself be one of those who remain in the dark!

By regularly conducting a superannuation health check and comparing your fund against others, you can identify areas for improvement and make informed decisions to optimize your superannuation growth. Over a 20-year period or longer, these small adjustments can result in a significant increase in your retirement savings.

Don't wait any longer--find out now how your superfund works and what can be done to help improve it!


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