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What's new in superannuation in September 2021?

Late last month, the Australian Prudential Regulation Authority (APRA) released the results of the inaugural MySuper Product Performance Test, revealing 13 super funds had failed to meet the required standards.

Introduced as part of the Australian Government’s Your Future, Your Super reforms, the test assessed 76 MySuper products with at least five years of performance history against the objective benchmark.

APRA executive board member Margaret Cole said: “Trustees of the 13 products that failed the test now face an important choice: they can urgently make the improvements needed to ensure they pass next year’s test or start planning to transfer their members to a fund that can deliver better outcomes for them”.

The results come as a stark reminder of the importance of regularly comparing your super fund’s performance against others to ensure it remains competitive.

Meanwhile, new super splitting laws were passed early this month that will help women get their fair share of superannuation assets at the breakdown of a relationship.

According to Industry Super Australia, the laws make it easier for parties to apply to the Australian Tax Office and view the super assets of another party during family law proceedings.

Industry Super Australia advocacy director Georgia Brumby said: “For far too long women have found it too hard to get a fair share of financial assets like super when a relationship ends, so this is a positive development”.

Updated by Georgia Brown on 6 September 2021.

What is superannuation?

Superannuation (also known as ‘super’) is a compulsory savings scheme through which some of your income is set aside so you can have a nest egg waiting for you when you retire.

Different super funds offer different investment options to help you grow your retirement savings. There are also extra features, benefits, fees and charges to consider. It's important to compare different super options to make sure you choose a fund that best suits your financial situation.

How does superannuation work?

If you are an eligible employee in Australia, your employer is responsible for paying your superannuation into your super fund account throughout the duration of your employment. Your employer will pay your super into your existing super fund, or set you up with a MySuper product if you are new to the workforce.

In accordance with current Australian Government outlines, your annual superannuation entitlements must be at least 10 per cent of your ordinary time earnings. For example, if you earn $100,000 per annum (before tax), your employer must pay you at least $10,000 in super per financial year. This is known as the ‘superannuation guarantee’ or SG.

The super guarantee contribution rate increased from 9.5 per cent to 10 per cent in July 2021, and is scheduled to increase by 0.5 per cent each year until it reaches 12 per cent in mid-2025. However, these increases to the super guarantee rate could be delayed, depending on Australia's economic situation. 

You may choose to pay extra money into your super fund, on top of what your employer is required to pay. This could include one-time payments, or a regular salary sacrifice arrangement with your employer. Some of these extra super contributions may be tax deductible. For more details, check with the ATO by visiting ato.gov.au.

Many super funds invest your super contributions into an investment portfolio. This may help grow your wealth faster than you’d likely earn in interest simply by depositing this money in a retirement savings account or term deposit. Different investment strategies may mean different returns on your investments.

Once you reach a certain age, you can start accessing money from your super fund as an income stream. This can help pay for your retirement lifestyle, reducing your reliance on the age pension.

Does every employer have to pay superannuation?

Whether or not your employer is obligated to make payments towards your superannuation will largely depend on the nature of your employment:

  • If you're a full-time employee aged 18 years or older, your employer will typically be required to pay you the super guarantee.
  • If you're a part-time employee aged 18 years or older, you must earn a pre-tax income of at least $450 per calendar month to receive the super guarantee.
  • If you are under the age of 18, you must earn a pre-tax income of at least $450 per calendar month, and work more than 30 hours per week, to receive the super guarantee.

However, according to the ATO, the minimum income requirement is set to be removed by 1 July 2022. This means that all employees will be paid the super guarantee by their employer if they satisfy the other eligibility requirements. This applies to most Australian citizens and temporary residents.

Those who are self-employed such as small business owners, freelancers and other sole traders are responsible for making their own super contributions if they choose to. While it's not a legal requirement to pay your own super, it's something worth considering as a way to save for retirement.

How much does superannuation pay?

The super guarantee determines how much super your employer will pay you. At the time of writing, the super guarantee is 10 per cent of your ordinary time earnings, and is legislated to progressively increase to 12 per cent by 1 July 2025.

Employers must make SG contributions into your super account at least once every three months, in line with the quarterly super payment due dates set by the Australian Taxation Office (ATO).

Quarter PeriodPayment due date
11 July - 30 September28 October
21 October - 31 December28 January
31 January - 31 March28 April
41 April - 30 June28 July

Source: ato.gov.au

When you start a new job, your employment contract will stipulate whether your income is inclusive of super or your super is paid in addition. 

If your income is inclusive of super, the SG will be taken out of what you earn, reducing your take-home pay. On the other other hand, if your super is paid in addition to your income, your employer is responsible for paying you the SG on top of your income.

It's important to note that if your contract states that your income is inclusive of super, each time the SG is increased this could mean that your take-home pay is further reduced. It's worth keeping this in mind when you sign a new employment contract.

How does this add up to a retirement payout?

Because you are unable to access the funds in your super account (apart from rare exceptions) until you reach retirement age, your account balance should see steady growth from SG deposits and any voluntary contributions made throughout your career. In addition to this, it should also experience growth from compounding interest over a number of decades until you reach retirement age.

A combination of these two factors should result in nest egg that can help fund your retirement.

What types of superannuation funds are there?

There are five main types of superannuation funds:

Fund Description Availablity
Retail super fundsRun by for-profit institutions such as banks and financial services companiesEveryone 
Industry super fundsRun by not-for-profit institutions to benefit membersMany larger industry funds are available to everyone, while some restrict membership to certain industries
Public sector super fundsCreated for federal and state government departmentsPublic servants
Corporate super fundsRun by companiesEmployees of those companies
Self-managed super fundsSMSFs are for Australians who want to manage their own investmentsEveryone

Most super funds are accumulation funds. When you retire, the fund will pay you whatever superannuation you saved up during your working life.

Some corporate or public sector super funds are defined-benefit funds, though most are closed to new members. When you retire as an eligible employee, you’ll receive payment based on a formula. For example, you might receive ongoing retirement income calculated as a percentage of your final salary. You might instead receive a lump sum calculated on the number of years you spent with your employer.

What is a MySuper fund?

MySuper is a government initiative that was introduced to replace the previous default funds system in order to provide lower cost, more simplified alternatives. If you don't have an existing super fund account when you start a new job, and don't nominate a new one yourself, your employer must pay your employer contributions into a MySuper fund.

MySuper products typically offer:

  • Lower fees
  • Simple features so you don't pay for services you don't need
  • Life insurance unless otherwise requested

How do you compare superannuation?

Australians have access to hundreds of superannuation funds and tens of thousands of investment options. It’s important to do your research to find the best super fund and best investment option for you, as choosing the wrong super fund or investment option can be costly.

There are five main factors to consider when choosing a superannuation fund:

1. Fees

You may prefer to pay low fees than higher fees when it comes to your superannuation, but keep in mind that a fund with higher fees might still offer better value than one with lower fees.

Some of the fees you may be charged include:

  • Administration fees
  • Investment fees
  • Financial adviser fees
  • Switching fees
  • Buy-sell spread fees
  • Activity-based fees
  • Indirect costs
  • Insurance premiums

2. Investment options

It's worth researching the different investment options being offered with different super funds to make sure you’re comfortable with:

  • The amount of risk you would be taking;
  • The asset classes you would be investing in, and;
  • How much of your super would be going to each asset class.

You may also want to consider how the investments align with your personal values. For example, many super funds now offer ethical investment options that have socially or environmentally beneficial priorities.

You can change your investment options to reflect changing personal circumstances or different stages of your career, but keep in mind that your fund will typically charge a fee for doing so.

3. Investment performance

It's important to research how each fund's investment options have been performing, such as by looking at their net investment returns (i.e. after fees). While past performance isn't a reliable indicator of future performance, Moneysmart suggests comparing the performance of different funds over the last five years.

Even a slight variation in performance has the potential to significantly affect your super balance over the life of your career.

When doing your research, it’s important to ensure you’re comparing apples with apples in order to make a fair comparison. This means comparing super funds of the same type, as well as the same risk profile. RateCity's super comparison table can help with this.

4. Insurance

Super funds commonly offer three different types of insurance:

  • Life insurance
  • Total and permanent disability insurance
  • Income protection insurance

If you’re interested in a super fund with insurance, consider investigating the premiums and conditions.

5. Customer service

You may also want to learn more about what sort of customer service you might receive from different super funds. This might involve comparing the promises made by funds in their marketing with the feedback left on online review sites.

Some customer service offerings also come at a cost, such as receiving financial advice, so be sure to look into this.

How do you claim your superannuation?

Generally, you can only access your superannuation if:

  • You’re permanently retired and you reach your ‘preservation age’, which is between 55 and 60, depending on when you were born, or;
  • You’re still working and you turn 65.

Once you are eligible to withdraw your superannuation, you will typically have the option to receive it as a lump sum, an ongoing retirement income stream, or a combination the two.

Can you withdraw your superannuation early?

There are a number of special circumstances in which you may be eligible for an early release of your super, including the following:

  • If you’ve suffered permanent or temporary incapacity
  • If you’ve received commonwealth benefits for 26 continuous weeks but still can’t meet your immediate living expenses
  • If you’re seriously ill and need to pay for medical treatment
  • If you have a terminal condition and are likely to die within two years

Consider visiting the ATO website for more detailed information on early super withdrawal.

How do you find the best super fund?

The best superannuation fund is the one you believe will offer you the best value. Each person will have their own definition of ‘best’, depending on what they prefer.

For example, you may want to look for:

  • The fund that has delivered the highest net returns/strongest performance over the past five years
  • The fund that has earned the highest approval ratings on online review sites
  • The fund that has investment options that best align with your own values

Those are just examples – you might have your own definition of what makes for the best super fund. Using comparison tools such as RateCity's superannuation comparison table can make it easier to focus on the factors that matter to you most.

How much superannuation should you have?

our superannuation will make a big impact on the kind of lifestyle you'll be able to afford once you retire. So, regardless of how far off retirement is for you, it's a good idea to keep an eye on your super balance and be proactive if it's below where you'd like it to be.

The Association of Superannuation Funds of Australia (ASFA) has estimated how much money you'll need in retirement, based on your preferred lifestyle.

Budgets for various households and living standards for those aged around 65 (June quarter 2021, national)

 Modest lifestyle Comfortable lifestyle
SingleCoupleSingleCouple
Total per year$28,514$41,170$44,818$63,352

Source: ASFA. Notes: The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement.

ASFA figures show that the amount you should have in your super when you retire to support a comfortable retirement lifestyle is $640,000 for a couple and $545,000 for a single person - assuming a partial Age Pension.

Meanwhile, ASFA estimates that a modest retirement lifestyle is mostly covered by the Age Pension. In which case the amount of superannuation needed to support a modest retirement lifestyle for a single or couple is $70,000.

According to ASFA, a modest retirement lifestyle is "considered better than the Age Pension, but still only able to afford fairly basic activities", while a comfortable retirement lifestyle "enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel".

If you plan to retire at 65, it's important to keep in mind that you'll likely need a retirement income for at least 20 years.

Parents who have taken time out of the workforce to care for children, as well as low income earners, will tend to have less superannuation than those who have been employed continuously, on an average to high income, for the four or five decades of their career. If this is the case for you, you may want to consider making voluntary contributions on top of the super guarantee if your budget allows.

Moneysmart's retirement planner calculator can help you calculate the income you're likely to get from super and the age pension when you retire, based on your personal financial details.

How often should you check your super?

Regularly checking your super fund's performance will allow you to see whether it remains competitive against the rest of the market.

MySuper products are now subject to an annual performance test by the Australian Prudential Regulation Authority (APRA), introduced as part of the Australian Government’s Your Future, Your Super reforms. If you are a member of a MySuper fund that fails the performance test, your fund must let you know so that you can make the choice to switch to a better performing fund. However, if you are not a member of a MySuper fund, your fund will not be subject to these tests. So, you might want to consider checking your super yourself at least once every 12 months. 

Some super fund members get into the habit of checking their super balance every quarter, once the super guarantee payment due dates have passed, to ensure their employer's contribution has cleared.

If you're still a member of the fund you signed up for at your very first job, you may also want to check other details such as who your beneficiaries are, the types of fees you are paying and what kind of insurance you may be covered by.

Can your super amount rise and lower over time?

Your super account balance can fluctuate from time to time, depending on various factors such as market conditions and the performance of your investment options.

Growth investment options are generally more likely to experience fluctuations compared to conservative investment options. For this reason, those closer to retirement age are more likely to choose to have their retirement funds invested in a conservative option.

While minor drops balanced with rises shouldn't be a concern in general, particularly if you are more than five years away from retirement, it is important to monitor your fund to ensure it's not experiencing a more consistent downturn.

How can you grow your super?

In addition to employer contributions (namely the super guarantee), you can opt to make voluntary superannuation contributions in the form of one or both of the following:

  • Pre-tax super contributions - Also known as salary sacrifice, pre-tax super contributions can be paid out of your pre-tax income by your employer, at your request. These payments, along with the super guarantee, make up what is known as your concessional contributions.
  • After-tax super contributions - If you reach the concessional contribution cap, there’s also the option to make super contributions from your after-tax pay. These payments are known as non-concessional contributions, as you will have already paid tax on this money.

Low and middle-income earners who make after-tax super contributions may also be eligible to receive a co-contribution from the government, up to a maximum amount of $500.

To find out more about government co-contributions and to see if you are eligible, visit the ATO website.

How do you find lost superannuation?

Lost superannuation refers to savings in a super fund account that you may have forgotten about. This can happen if you've opened a new super fund account each time you've started a new job, instead of nominating an existing account.

You can use your MyGov account to see details of all your superannuation accounts, including any you might have forgotten. Alternatively, you can fill in a ‘Searching for lost super’ form and send it to the Australian Taxation Office, which will then search on your behalf.

Once you've found your lost super, the next step is to consolidate your funds into a single account of your choice. You can either do this yourself via your MyGov account, or get in touch with your chosen fund to see if they are able to consolidate for you.

What is a superannuation fund?

A superannuation fund is an institution that is legally allowed to hold and invest your superannuation. There are more than 200 different superannuation funds in Australia. They come in five different types:

  • Retail funds
  • Industry funds
  • Public sector funds
  • Corporate funds
  • Self-managed super funds

Retail funds are usually run by banks or investment companies.

Industry funds were originally designed for workers from a particular industry, but are now open to anyone.

Public sector funds were originally designed for people working for federal or state government departments. Most are still reserved for government employees.

Corporate funds are arranged by employers for their employees.

Self-managed super funds are private superannuation funds that allow people to directly invest their money.

How do you open a superannuation account?

Opening a superannuation account is simple. When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You might want to provide your tax file number as well – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

What superannuation details do I give to my employer?

When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You should also provide your tax file number – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

How do you set up superannuation?

Before you set up a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).

How does superannuation work?

Superannuation is paid by employers to employees, at least once every three months. The ‘superannuation guarantee’ is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary. The guarantee is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Superannuation is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

You can withdraw your superannuation when you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

 

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.