Superannuation is a tax-effective way to build up your retirement nest egg over your working life – ideally so you don’t have to rely on the government pension.
Employer superannuation contributions are mandatory in Australia and have been since 1992. The aim is for all Australians to maintain and enjoy their quality of life in retirement.
Because superannuation is a long-term investment, finding a super fund that suits your lifestyle and income is essential. With so many options, there’s a lot to consider when running a superannuation search.
We’ve put together a comprehensive guide to make your superannuation search easier.
How does superannuation work?
Before you start a superannuation search, it’s important to understand how superannuation works. If you’re an Australian citizen and you’re employed by an Australian company, your employer has to make compulsory superannuation contributions on your behalf. The current superannuation guarantee is 9.5 per cent of your gross salary. Given the fact that Australians are living longer into retirement, the rate is set to steadily increase to 12 per cent by 2025.
When you start a new job, you’ll need to provide your employer with details of your superannuation fund. If you don’t nominate a super fund, your employer will pay your compulsory contributions into a fund they nominate. Once they’ve received the contributions, your superannuation fund will invest the money on your behalf with the intention of growing your super balance steadily, until you retire. When you’re ready to retire, you can choose to access your super in a lump sum or take it as a regular income stream or opt for a combination of the two.
It’s in your interest to search for a superannuation fund that makes the best sense for you and gives you the greatest return. Superannuation payments are usually made every quarter and, depending on the fund you choose, you may be able to track your superannuation balance online, via an app, or in a statement sent to you by your superannuation fund.
There are a few circumstances where superannuation contributions are not mandatory, including:
- If you’re an employee and you earn less than $450 a month
- If you’re under 18 and work less than 30 hours each week
- If you’re not an Australian resident and you work outside Australia
Superannuation is also not currently compulsory for Australians who are self-employed. Even though it’s not mandatory, it’s recommended that self-employed Australians make super contributions and invest in their retirement.
How can I add to my super?
When you’re running a superannuation search, you may notice that there are various ways you can contribute to your super fund and boost your super balance.
Employer contributions are generally the main source of super because it’s mandatory for all Australian employers to contribute at least 9.5 per cent of an employee's gross salary into their nominated super account. This is generally where the majority of our super comes from. To account for increased costs of living and greater life expectancy, there are plans for this to be increased to 12 per cent by 2025.
Depending on how much you earn, you may also choose to make concessional contributions to your superannuation account. To do this, you can arrange for your employer to salary-sacrifice a portion of your pre-tax salary into your super fund. In addition to growing your super balance, there are some tax advantages to making concessional contributions. What you’re essentially doing is reducing your taxable income and taking advantage of the fact your concessional contributions will be taxed at just 15 per cent. There are limits, though, to how much you can contribute to your super via concessional contributions.
While concessional contributions are made from your pre-tax salary, you also have the option to make non-concessional contributions from your post-tax salary. This isn’t generally as tax-effective, and there are also limits on the amount you can contribute from your post-tax salary.
Low-income earners may be eligible for the government co-contribution if their income is below a certain threshold and they choose to make non-concessional contributions. Government co-contributions work by adding $0.50 for every post-tax dollar you deposit into your super balance. There is a cap on the amount the government will co-contribute. Low income earners may also be eligible for the Low-Income Superannuation Tax Offset.
How to search for superannuation funds
With so many different options on the market, searching for a superannuation fund can be complicated.
When you’re conducting a superannuation search, it’s easy to get overwhelmed. You’re essentially looking a super fund that fits your needs and gives you the greatest return on your contributions.
Here are the things you need to compare in your superannuation search:
Start by looking at what investment options the fund offers and look at the historical performance to get a gauge on what type of returns you might be able to expect.
While past performance is not a guarantee for future returns, looking back at the returns in the past five years may give you a very rough idea of the return you can expect.
When it comes to investment options, some people prefer having the flexibility to pick their investments. If you want a fund that lets you choose your investment based on industry or life stage, search for a super fund that suits your preference.
Depending on your level of interest and ability, some funds let members do their own investing. If you prefer a greater say in your investments, look for a fund that gives you the control to put your money where you want it.
Some managed super funds offer an ethical investment option. If you prefer your funds to be invested in, say, renewable energies as opposed to mining, then search for a superannuation fund that offers the investment options you’re looking for.
Aside from investment options, the other element you’ll want to consider on your superannuation search is fees. Generally speaking, the lower the fees, the better.
As superannuation is generally a long-term investment, fees can add up considerably over time.
When it comes to assessing fees, the main question you want to ask yourself is: ‘Is it worth it?’ Consider whether the fees you pay will help you get a great return on your superannuation. Not all fee structures are the same – some funds charge additional fees for extra services like advice or different types of investments. Before you make any decisions, find out exactly what the fees are for and work out if the costs outweigh the benefits.
When you’re searching for superannuation, you may notice different types of insurance offered by each fund.
The majority of superannuation funds will offer insurance as an option, and one of the advantages of taking insurance through your superannuation fund is that the policies are often discounted. Terms and conditions of insurance funds within super differ greatly, so do your research to make sure the type of cover holds up if you need it and that the premiums are worth the cost.
Common types of insurance within a super fund are:
- Life insurance
- Total and permanent disability (otherwise known as TPD insurance)
- Temporary inability to work (otherwise known as income protection insurance)
It’s worth noting that some funds offer insurance on an opt-in basis, which means that it’s not automatically enabled when you open the super account. Check the details to make sure you’re covered.
While these are the more standard elements to compare in your superannuation search, it’s worth asking if a potential super fund has any other benefits such as a contribution-matching deal or any industry-specific training.
How do I switch super funds?
If you’ve spent some time searching for the right superannuation fund and you’ve compared your options, you may decide to switch super funds. Before you make the switch, look out for any exit or withdrawal fees you’d be charged for moving your super fund to a different fund. Some funds may penalise you for moving and, depending on your age, circumstances and super balance, this may affect your insurance cover and benefits.
In theory, making the switch is relatively simple and can be done anytime you want, but before you make any decisions, we recommend spending some time searching for a superannuation fund that fits your needs and lifestyle.