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Introduction to Australian superannuation

Along with your health and loved ones, one of the most important things to consider in the golden years of your retirement is your superannuation.

These days, most people living in Australia can expect to enjoy 20 or more years of retirement. When that time comes, your superannuation is an invaluable nest egg to have: a regular income that can supplement or even substitute the age pension.

By taking the time to understand how Australian superannuation works, you can help set yourself up for future financial security.

How does superannuation in Australia work?

Superannuation (also known as 'super') is a portion of your before-tax wage set aside by your employer for you to live on when you reach retirement. The money is placed in a fund where it accrues throughout your working life. It is also invested in various assets, such as shares, property, cash or commercial ventures.

When you start a new job, your employer will request the name of your current Australian super fund, usually through an Australian Taxation Office (ATO) standard choice form. If you don't choose a fund, they will select one for you.

When can I access my superannuation in Australia?

You can access your superannuation when you reach your 'preservation age', which is between the ages of 55 and 60 depending on when you were born.

Preservation age based on date of birth

Source: ATO

You can access your super early by applying to the Department of Human Services or your super fund in special circumstances, such as severe financial hardship, a terminal medical diagnosis, or if you're a temporary resident leaving Australia.

Be wary of operators who claim they can offer you early access to your super. These operations are illegal and can incur heavy penalties.

What is the superannuation guarantee?

Most countries have some form of superannuation in place. The bedrock of Australia's superannuation system is the superannuation guarantee, through which employers must contribute a percentage of their employee's ordinary time earnings into their super fund.

You are eligible for the super guarantee if you are:

• 18 years old or over
• Earned more than $450 before tax in a month in full-time, part-time or casual work
• A temporary resident
• A contractor paid primarily for labour

The superannuation guarantee is currently 9.5 per cent of a worker's wage, and is legislated to grow over the coming years:

Super guarantee percentage

Source: ATO

I'm self-employed. Do I pay myself super?

If you're self-employed, there is no system to ensure you contribute regularly to your super account. You can make contributions by putting aside a lump sum when cash flow allows, or if you pay yourself a wage, provide your own superannuation guarantee by putting the relevant amount of your before-tax income into super.

How can I boost my Australian superannuation?

Australian superannuation is a tax-effective system designed to help people save for retirement. Your employer's contribution into your super fund, for example, is taxed at only 15 per cent - less than half the average marginal tax rate for most workers.

This means putting extra contributions towards Australian super can be a good way to take advantage of tax incentives offered by the government - not to mention save for your future.

You can contribute extra to your super in two ways:

• Make contributions from your before-tax income by 'salary sacrificing'. You can arrange for your employer to direct a portion of your before-tax salary to superannuation and attract a lower 15 per cent tax rate rather than the higher marginal tax rate. Take care though: the amount of before-tax contributions you can make is currently capped at $25,000 a year. Once you reach that amount (known as the ‘concessional contributions cap'), you will be hit with a penalty tax.
• Make extra super contributions from your after-tax income. Called a 'non-concessional contribution', this is money put into your super from your take-home pay, or from money made elsewhere. Although you don't get a tax concession on this contribution like with salary sacrificing, any investment income generated from that amount is taxed at a concessional rate of 15 per cent. There is currently a non-concessional contributions cap of $100,000 per financial year.

What government super assistance is available?

If you are on a lower income, you may be eligible for the Low Income Superannuation Tax Offset (LISTO): a co-contribution scheme established by the government to help workers on low incomes save more superannuation in Australia.

LISTO refunds up to $500 of the tax paid on concessional (before-tax) super contributions for workers with a yearly income of up to $37,000. The benefit is paid directly to your super fund.

Can my partner help boost my superannuation?

Under the Australian superannuation system, you can contribute to your spouse or de facto partner's super by 'contribution splitting': having some of your super placed into your partner's account.

Contribution splitting can only be done at the end of the financial year. It's a handy option if, for example, your partner takes time off work to care for children and needs to top up their super.

RateCity allows you to compare Australia's superannuation funds according to performance, fees charged and features. This can help you ensure your retirement is in the best possible hands.