Superannuation - understanding the basics

Understanding the basics

Superannuation

Ever thought that working out your superannuation should be easier? Our range of simple online tools and information services can help you understand super so you can play a more active role in making your super grow.

What is superannuation?

Superannuation, or super as most of us know it, is a good long-term savings plan, which will provide you with an income when you retire and also by providing benefits to beneficiaries on death or the member on disablement. For many Australians, super will be their main form of retirement income.

During your working life you make contributions to your super fund and the earnings you receive are reinvested, building up the value over time. Generally, your superannuation benefits must remain in super until you satisfy a condition of release such as reaching age 65 or your preservation age and you have permanently retired or when you begin your transition to retirement, both after a set minimum age.

If you would like to know more about super speak to your financial adviser

 

How does super work?

To understand how super works, it's important to keep in mind that super is a framework for holding investment assets. It's not an investment in itself. Super funds can offer a range of investment options and asset classes that may include cash, property, shares and fixed interest.

When you put money into your super fund and choose your investment options, you are actually buying units in these funds (if the super fund is unitised). The number of units you receive depends on the daily unit price. This price will vary daily according to changes in the market.

Money can be put into your super fund by you, your employer, your spouse and sometimes even the Federal Government. Typically, if you are working, your employer will currently contribute at least 9.5% of your salary to your super fund. This is known as compulsory superannuation guarantee. This rate is set to increase gradually to reach 12% by 2026.

Increasing the superannuation guarantee rate from 9.5% to 12%

 Year

 Rate(%)

2016/17-2020/21

9.5

2021-2022

10.00

2022-2023

10.5

2023-2024

11

2024-2025

11.5

2025-2026 and later

12

For more information about how super works read OnePath's Superannuation Fundamentals (613 kb PDF) or speak to your financial adviser.

What types of super funds are there?

There are several different types of superannuation funds. The mains ones are;

Employer/corporate/staff funds - these are funds established by an employer for the benefit of their staff.

Personal funds - as the name implies, you personally join as an individual through a super provider. There are many available and most will offer a wide range of investment choices and other features.

Industry funds - these were originally set up for people working in a particular industry, e.g. builders or health care workers. Many are now available to the public.

Self-managed super funds (SMSF’s) - these can have up to five members and are generally used by people with larger amounts in super who want more control and flexibility. If you would like more information about the different types of super funds, speak to your financial adviser.

If you would like more information about the different types of super funds, speak to your financial adviser.

 

When can I access my super?

Generally, your superannuation benefits must remain in super until you satisfy a condition of release such as reaching age 65 or your preservation age and you have permanently retired. This is to ensure your super savings are used for when you reach retirement.

Before you can access your super you need to meet certain conditions, but speak with your adviser for more information or go to the APRA website.

Can I choose my super fund?

Since 1 July 2005, employees, with some exceptions, have been able to choose the super fund their contributions are paid to. The good thing about this is it puts you in control of what could be your biggest source of retirement savings.

For help in making decisions about super talk to your financial adviser. Your adviser can help you identify your goals and recommend the super strategies best suited to your individual situation.

How can a financial adviser help me?

With all that's happening in financial markets at the moment it's only natural to be looking for help to make sense of it all. Like all of us you want to know what the changing markets mean for you, your family, your savings and your future. That's why it's a good idea to speak to a qualified financial adviser.

A financial adviser can help you assess your current financial position and work out whether you're in good shape to meet your personal and financial goals. Knowing what your goals are puts you in a better position to make choices that are right for you. It also helps your financial adviser develop or update your plan so it is tailored to your needs. The sort of things you should think about are your goals for:

  • building savings and investments,
  • protecting your family and lifestyle,
  • planning for changes in your life like the birth of a child,
  • saving for your retirement

A financial plan based on your goals and priorities puts you in control of your financial future and helps you create a secure and comfortable future. If you already have a financial adviser it may be a good time to review your plan together to make sure it still meets your needs. If you don't have a financial adviser, OnePath can help you find one in your local area. We can also help you understand what to expect from your first meeting and give you tips on how to prepare so you are comfortable and confident with the planning process.

This information is current as at 16th February 2017. This information is of a general nature only and has been prepared without taking into account an investor’s personal needs, financial situation or objectives. You should consider the appropriateness of the information, having regard to your objectives, financial situation and needs. Taxation law is complex and this information has been prepared as a guide only and does not represent taxation advice. Please see your tax or financial adviser for independent advice.

Retirement

Wouldn’t you like to have the peace of mind in knowing that you will be able to afford the life style you want in retirement?

Are you getting ready to retire?

Australians are living longer and retiring earlier and many people are now spending more than a quarter of their lives in retirement. It’s good news, but it also shows how critical it is to plan for your retirement. It’s never too late to start planning, and the sooner you start, the easier it is.

Here are some important questions to consider if you are getting ready to retire.

  • How soon would you like to retire?
  • What do you plan to do with your time when you retire?
  • How much super do you have?
  • How many years of retirement do you need to plan for?
  • Are you thinking of working part-time?
  • Will you be making any big purchases like a house, car or holiday?
  • Will you access the age pension or other Centrelink benefits?

Remember you are the one who has worked hard to build your super savings and now it's time to make your money work for you in retirement. To learn more read OnePath's Retirement fundamentals (623kb PDF) booklet, or talk to your financial adviser to work out the best strategy for you to live comfortably in your retirement.

How much will I need for a comfortable retirement?

Everyone is different and how much you need to live comfortably in retirement will depend on a range of factors including whether you are married or single, if you have dependants, how you plan to spend your time, your hobbies and interests just to name a few.

The Association of Superannuation Funds of Australia (ASFA) has put together a guide which shows how much you will need for a comfortable standard of living and the types of things you may need to spend your money on. They have estimated that to live comfortably:

  • retired singles will need $38,611 per year
  • couples will need $51,727 per year.

To help you work out if you have enough for retirement why not look at OnePath’s Retirement fundamentals (623kb PDF) booklet. It’s also a good idea to talk to your financial adviser who can help you with tips and strategies to improve your retirement savings.

Do I have enough to retire?

To work out whether you have enough to retire there are three things you need to know:

  • How much income you’ll require in retirement
  • How many years will you spend in retirement
  • How much you expect your investments to earn over your retirement years

We are living longer and it is not unusual to live more than 20 years in retirement, so it's important to determine your needs in retirement.

It’s also a good idea to speak to your financial adviser who can help you with tips and strategies to improve your retirement savings.

When can I access my super savings?

Generally Australians can only access their super savings when they reach their preservation age. For people born after 30 June 1964, the magic number is 60. But for those born before this date it can be earlier.

Date of birth Preservation age

Before 1 July 1960

55

1 July 1960 - 30 June 1961

56

1 July 1961 - 30 June 1962

57

1 July 1962 - 30 June 1963

58

1 July 1963 - 30 June 1964

59

1 July 1964 onwards

60

In making decisions about when to retire, don’t forget you could save a large amount of money by delaying your retirement until 60. This is because super can be accessed tax free after this age. So even if you had plans to retire earlier it might be worthwhile to wait.

How can I access my super savings?

You’ve worked hard all your life to accumulate your super savings and now you’re ready to retire, what do you do with it? Basically you have three options for super when you retire:

  • Withdraw your super as a lump sum.
  • Take it in the form of a retirement income stream.
  • A combination of both.

To learn more about these retirement income streams read OnePath’s Retirement fundamentals (623kb PDF) booklet.

Remember, the way you access your super monies can affect the amount of tax you pay and your Centrelink entitlements. Before making a decision it is important to talk to your financial adviser who can help you make the right decision based on your individual retirement needs.

Can I get the age pension?

For many people the age pension will not provide enough money to fund a comfortable retirement. But it can still play an important role in qualifying you for pensioner concession care, saving you money on expenses relating to health, utilities and transport.

You can generally access the age pension when you reach a certain age provided you meet Centrelink’s residency requirements and your income and assets are below a certain amount. It is important to note that the Government has recently announced a proposal (this is not yet law) to increase the age at which some people qualify for the age pension from age 65 to age 67.

The mix of your income and assets can impact the level of support you receive from the Government through Centrelink. That’s why it’s important to talk to your financial adviser who can help you work through the eligibility criteria and ensure you receive your maximum entitlements.

This has been provided for general information purposes only. It does not purport to recommend any particular adviser or provide you with financial advice. In addition to seeking financial advice, potential investors must always read the Product Disclosure Statement for the relevant product before making an investment decision

Investment

Whatever your financial goals, investing can be a great way to help you achieve them sooner. But where do you start? And what types of investments are right for you?

Five simple tips to start investing

  • Identify your personal and financial goals
  • Make a budget, and work out how much you have to invest
  • Work out what sort of investor you are, and how much risk you're willing to take
  • Start investing. The sooner you start, the sooner you'll reach your goals
  • Get good advice. A financial adviser can develop a plan tailored to your personal needs and goals.

What am I trying to achieve?

If you're thinking of investing, the first thing you need to do is work out what your personal and financial goals are.

Identifying the things in life that are important to you – like owning a house, starting a family or having enough for the kids' education – will help you work out the lifestyle you want, and the amount of money you'll need to achieve it.

Understanding your goals will give you the basis for developing your investment or financial plan.

OnePath's financial health check (913kb PDF) can help you get started. By answering a few simple questions, you'll see what shape your finances are in, and work out where you might need to make some changes to meet your financial goals.

How much do I need to invest?

No matter how little you have, you can start investing for the future. The longer your investment has to grow, the better the results. Even if you can’t afford to invest a large amount, you may be able to start a small but regular savings plan.

Why is a budget important?

The simple truth is that the only money you’re likely to save and invest is the money you don't spend. But many people only have a vague idea of how much they actually spend.

With a budget, you can see exactly where your money goes and how it's being used. This allows you to:

  • identify surplus money that can be used for investing
  • see where your money is being spent, and help you decide whether to continue spending money in the same way, or reduce your outgoings and increase your savings
  • cope with surprise expenses
  • manage your finances, and give you more confidence in your financial future.

What sort of investor am I?

Once you've identified your personal and financial goals, and worked out the amount you have available to invest, you need to understand what type of investor you are.

All investments carry some form of risk, and you need to be comfortable with the amount of risk you are willing to take.

Talking to a financial adviser is the best way you work out your risk profile. But to give you an idea, ask yourself the following questions:

  • How much do I need to reach my goals?
  • Do I have a good understanding of the financial markets?
  • What sort of return do I want on my investments – stable, fast-growing etc.
  • Am I willing to take a risk to achieve a higher rate of return on my investments?

OnePath's Investor profile can help you answer these questions and work out how much risk you're willing to take. With this information, and an idea of your goals, you and your financial adviser can develop a plan tailored to meet your specific needs and financial situation.

What’s the relationship between risk and return?

Risk and return are closely correlated – higher risk generally means higher returns, while lower risk usually means lower returns. As an investor, this is known as the risk/return trade off.

Understanding risk and return is fundamental to achieving your investment goals. This is because understanding your risk tolerance will decide the type of assets you invest in.

Your financial adviser is the best person to help you work out your risk profile, and choose the investment options that best suit your needs.

What are asset classes?

Asset classes refer to different types of investments. There are four main asset classes you can invest in – cash, fixed interest, property and shares. The return you achieve, and the level of risk, is different with each asset class.

Cash

Cash is the generic term for investments such as short-term bank deposits and treasury notes. Cash is considered the least risky of the major asset classes – generally providing investors with a moderate regular income, but little chance of capital gain.

Fixed interest

Fixed interest investments, or bonds, are effectively loans provided by investors to corporations and government bodies in return for interest payments over the life of the bond. Bonds carry a low to medium risk, and predominantly reward investors with a regular income stream – generally higher than that earned by cash investments.

Property

Property is considered a growth asset, and involves investing in residential or commercial property, or via a listed property trust (LPT). LPTs invest in a range of property – including residential housing, shopping centres, office buildings, factories, and hotels. As property is a growth investment, capital gains may be expected over the long term, in addition to ongoing income from rent. Property is considered moderately volatile.

Shares

Shares are securities representing ownership of a company. When you buy a share in a company, you become a joint owner of the business. As a shareholder, you may enjoy the company's profits through dividends. You can also sell the shares, hopefully for a capital gain, sometime in the future. Shares are the most volatile of the major asset classes in the short term, but can outperform other asset classes over the longer term.

Investing in different asset classes is a good way to reduce risk. By spreading your funds across different asset classes you remove the risk of putting all your eggs in one basket – i.e. the risk that you will choose the wrong asset class at the wrong time.

What is a managed fund and how does it work?

A managed fund combines your money with that of other investors to form a single investment pool. Specialist investment managers then invest the money on behalf of the investors in a single asset class, or a range of asset classes.

The beauty of managed funds is that they can invest in a range of asset classes – including shares, property, fixed interest and cash. Exactly what type of assets your fund invests in depends on the fund’s objectives.

Managed funds offer a range of benefits including:

  • Diversification – invest across a range of asset classes
  • Access to experts – who make and manage the investments on your behalf
  • Convenience – paperwork and administration is handled by your fund manager
  • Access to major investment classes – a managed fund can give you access to international and local investment opportunities
  • Economies of scale – managed funds possess buying power when the dollars of investors are pooled together which may not be available to the individual.

By investing in a managed fund, you can benefit from a diversified portfolio beyond what most investors could achieve themselves. You can also save yourself the time, cost and effort of managing your portfolio.

Your financial adviser can also explain how managed funds work, and help you select a fund to best suit your needs and risk profile.

Tips, tools & strategies

Whether it’s your own retirement savings, or group super for your employees, it pays to understand the ins-and-out of how superannuation works.

Five simple rules for investing in volatile markets

As we’ve seen in recent times, investment markets can change overnight. But there are some simple rules that investors have been using to help build long-term wealth for decades.

1. Stay calm

Do not rush any investment decision.

2. Diversify your investments

It’s notoriously difficult to predict what’s going to be the best-performing asset class in any given year. Diversifying investments across asset classes allows you to benefit from each year’s best performers. It can also help you smooth out the volatility of your returns.

3. Spend time in the market

One of the most powerful features of long-term investing is the ability to benefit from compound returns. By staying invested, as opposed to regularly entering and exiting the market, your investments have more time to grow and earn returns on your returns.

4. Monitor and review your investment strategy

Like most things in life, it’s a good idea to regularly review your financial plan to make sure it’s still right for your current financial situation.

5. Seek professional financial advice

A financial adviser can help ensure your strategy meets your needs, and even help you update it as your circumstances change. With a clearly defined strategy and goals, you can have the confidence you need to withstand market fluctuations.

The magic of compound interest

Trying to predict the best time to enter the market can be impossible. Dollar cost averaging is one useful technique to help iron out the ‘ups and downs' of the sharemarket.

Instead of buying $6,000 in shares at one point in time, you may choose to spread your investment across regular time periods – e.g. $500 every month for a year. By spreading your investment over time, you take away the problem of attempting to determine the ‘top' or ‘bottom' of the market.

For an example of how dollar cost averaging works take a look at OnePath's Investment Fundamentals (577kb), and ask your financial adviser if it's a strategy that's right for you.

Don't just save. Invest.

Saving and investing are not the same thing. Saving is holding your money to use in the future, instead of spending it now. On the other hand, investing is putting the money you have saved to work.

The ultimate aim of investing is to grow wealth, but you can also generate income from your investments. So why not put your savings to work, and make the most of them by investing?

Are your finances in good shape?

Being financially fit is about making sure all aspects of your financial situation are in order. Take our financial health check (913kb PDF) to see which areas of your finances are healthy and strong, and which might be up for some improvement.

Investments and the current market

Whether it’s your own retirement savings, or group super for your employees, it pays to understand the ins-and-out of how superannuation works.

How do I make the most of my investments in this market?

With sharemarket volatility a daily part of news headlines, it's only natural to be concerned about how the fluctuations might be affecting the value of your investments. It can also be tempting to move your money into less risky investments.

The best way to keep your investments safe in times of volatility is to follow these five simple rules:

1. Stay calm

Do not rush any investment decision.

2. Diversify your investments

It’s notoriously difficult to predict what’s going to be the best performing asset class in any given year. Diversifying investments across asset classes allows you to benefit from each year’s best performing asset classes. It can also help you smooth out the volatility of your returns.

3. Spend time in the market

One of the most powerful features of long-term investing is the ability to benefit from compound returns. By staying invested, as opposed to regularly entering and exiting the market, your investments have more time to grow and earn returns.

4. Monitor and review your investment strategy

Like most things in life, it’s a good idea to regularly review your financial plan to make sure it’s still right for your current financial situation.

5. Seek professional financial advice

A financial adviser can help ensure your strategy meets your needs, and even help you update it as your circumstances change. With a clearly defined strategy and goals, you can have the confidence you need to withstand market fluctuations.

Take a look at OnePath's Market insights which has market updates, expert opinion and webcasts to help you make sense of the markets.

It’s also a good idea to talk to your financial adviser. They can help you work out a clearly defined strategy that meets your goals, and gives you confidence when markets are volatile.

Is the bank a better choice for my investments?

While it can be tempting to jump out of your investments in volatile markets and keep your money in a bank account, doing so can have a big impact on your long-term savings goals.

For starters, jumping out of investments after a downturn essentially turns ‘paper’ losses into real losses. It also robs your investments of a chance to recover.

History shows us that investors who stick to their long-term strategy tend to come out ahead. Despite short-term crises, sharemarkets historically recover and make gains over time.

If you're worried about the safety of your investments, talk to your financial adviser to make sure that the strategy you have in place still meets your future needs and goals

What do the next six months hold for the financial markets?

While no one can predict what will happen in financial markets, it's important to remember that there will always be movements. In the last year or so we have experienced volatility, but OnePath and other economic and financial experts believe that the markets will return to stability.

History has shown us that markets will always fluctuate. But it has also shown us that the longer you stay invested, the less affected you are by short-term volatility.

Are my investments safe with OnePath?

You can be confident your investments are secure with OnePath.

OnePath is a financially strong and profitable business that is well placed to weather market turmoil. OnePath (and our predecessors ING and Mercantile Mutual) have operated in Australia for more than 130 years. We have withstood many changes in the markets (including the Great Depression) and have gone on to create opportunities and grow our business.

Our key focus is to support and provide services to our customers, and we are also working to build business across our core markets of superannuation, investments and insurance.

We are a leading and trusted brand in financial services, being the third largest life insurer and the six largest retail fund manager in Australia.

Our goal is to help Australians grow and protect their wealth, and we are here for our customers through all market cycles.