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What is superannuation?


Laine Gordon

By Laine Gordon

3 min read

Before you can prepare for retirement, you need to understand how to go about the process!

Australia's superannuation system helps people shift into their post-work years without coming under financial strain. While a savings account is good to have throughout your life, superannuation ensures dedicated retirement funds are locked away until you reach a certain age.

There are strict rules surrounding superannuation, not to mention many ways to grow your wealth. Here are some helpful tips to the system, which is colloquially referred to as super.

What is superannuation?

Preparing for retirement is not an overnight process. Instead, you'll need to grow your nest egg over a long period of time. 

If you're a salaried employee aged 18 years or older and earn $450 or more per month before tax, your employer is obliged to make super contributions on your behalf. At the time of writing, this amount is 9.5 percent of your salary and is paid by your employer into your selected super fund, however the proportion will increase over time.

You can also make payments yourself, to top up the employer contribution.

What is a super fund?

Your employer will need to make their contributions to a super fund on your behalf. 

In many cases, you get to elect which super fund you want to go for. In other instances, there may be an applicable employment award or a clause in your employment agreement that dictates a default fund, which you have to use. It's best to check with your employer if you're unsure.

You'll need to take your age into consideration when choosing a fund. If retirement is fast approaching, a conservative fund may be your best option — with less time on your side, you won't be able to weather short- to medium-term losses as well as someone who's younger.

By contrast, if you're fairly new to the workforce, a fund with a more aggressive investment strategy could be right for you. While there's potential for losses, you can generally ride these out over time and experience favourable growth overall.

How can I boost my superannuation?

While employer contributions will help build a healthy retirement fund, it's a smart idea to make extra contributions, where possible.

You can ask your employer to contribute additional money to your super from your salary, which is known as a salary sacrifice or concessional contribution. This is made before your salary is taxed. For many individuals, this is a favourable option, as the money is taxed at the concessional rate of 15 percent.

Alternatively, you can make non-concessional contributions. There is a limit to the level of such contributions, however. If you exceed it, there is a significant tax rate applied to subsequent amounts.

Finally, be sure to check how many super funds you have! If you've switched employers, you may have more than one super account, which could be sucking up precious money in extra fees.

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