Superannuation - understanding the basics

Understanding the basics

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. 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. The money that you put into your super fund must generally stay there until you reach retirement, or when you begin your transition to retirement, both after a set minimum age. As contributions to your super fund and their earnings are generally taxed at just 15%, this makes super one of the most tax-effective investment vehicles.

If you would like to know more about super speak to your financial adviser or watch the short video below.

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 9.25% 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 2020.

Increasing the superannuation guarantee rate from 9.25% to 12%

 Year  Rate(%)
2013-14 9.25
2014-15 9.5
2015-16 10
2016-17 10.5
2017-18 11
2018-19 11.5
2019-20 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;

  1. Employer/corporate/staff funds - these are funds established by an employer for the benefit of their staff.
  2. 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.
  3. 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.
  4. Self-managed super funds (also called 'do it yourself' funds) - these can have up to four members and are generally used by people with larger amounts in super or by family groups.

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

Can I withdraw the money that I have in super?

Usually, you are restricted from accessing your super money until you reach your preservation age. Your preservation age is based on your date of birth and ranges between 55 and 60. In very specific circumstances you may be able to access your super funds on compassionate grounds, however these situations are limited. For more information talk to your financial adviser or go to the APRA website.

When can I access my super?

Generally, you can only access your super savings when you reach preservation age. This is to ensure your super savings are used for when you reach retirement.

Before you can access your super you need to meet one of the conditions below:

  • Reach preservation age and retire
  • Reach preservation age and continuing to work
  • Changing jobs on or after 60 years of age
  • Reach 65 years of age.

Your 'preservation age' determines when you can access your money, even if you have not retired. It is based on your date of birth and ranges between 55 and 60.

How much super is enough?

Your retirement may be a distant thought or it may be just around the corner. Either way, it's important to know you'll be able afford the lifestyle you want and deserve.

While Australian employers are required to contribute at least 9% of your salary to super, you need to work out if this will be enough for you to live comfortably in retirement?

The amount of super you'll need will depend on your individual circumstances, such as your current age, current income, desired retirement age, desired retirement income and current super balance.

It's also a good idea to speak to a financial adviser, as they can help you with tips and strategies to make the most out of your super and save more for your retirement.

Is compulsory super enough to meet my needs?

Most Australian employers are required to contribute at least 9% of your salary to super; this is known as compulsory super. Even though compulsory super is intended to help fund your retirement, it may not provide you with enough money in retirement for the lifestyle that you want.

Before you decide that you can solely rely on compulsory super contribution please speak to your financial adviser.

Can I choose my super fund?

The short answer is yes. 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 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.