Superannuation: why you should care right now

Superannuation: why you should care right now

Retirement may seem decades away, but with such strong performance and growth in super funds at this very moment, superannuation is finally getting its day in the sun.

After a record breaking tenth consecutive positive financial year return, ChantWest has named QSuper as one of two top performing growth funds, having returned an exciting 9.9 per cent in the last financial year.

QSuper-Top-Performing-Rate-City

Source: Chant West
Notes:
1. Where a super fund has more than one investment option in the Growth category, only its main investment option has been included in the top 10.
2. Performance is shown net of investment fees and tax. It is before administration fees and adviser commissions.  

A typical long-term objective of superannuation funds is to beat inflation by 3.5 per cent, and current figures show the top performing funds are now returning over 8 per cent above the current inflation rate of 1.3 per cent.

Such impressive returns on superannuation investments could signal a shift in consumer interest toward super funds in Australia.

Retirement-Savings-Super-Funds-QSuper

The recent RBA rate cuts and ensuing reduction on interest rates for term deposits and savings accounts have worried some long-term savers.

However, with a 9.9% return on super investments, putting money into your super for retirement could be a competitive alternative to your traditional savings tactics.

What to look out for when reviewing fund performance

A fund’s performance over one financial year may not be a reliable indicator of future performance, QSuper’s head of investment strategy Damian Lillicrap says:

“Australians should focus on long-term performance, because for most fund members, superannuation is a multi-year, multi-decade commitment.”

QSuper-Top-Performing-Funds-Rate-City

Source: Chant West
Notes:
1. Where a super fund has more than one investment option in the Growth category, only its main investment option has been included in the top 10.
2. Performance is shown net of investment fees and tax. It is before administration fees and adviser commissions. 

Hidden-Fees-Superannuation-Australia-RateCity

Fees should also play a key part in your decision making process when it comes to choosing a super fund.

A 1% difference in fees may seem insignificant, but as superannuation is a long game, over 40 years this could be a difference of 19% in your final super balance.

Remember, each financial situation is different, so the best way to compare fund fees and charges is through a superannuation calculator, such as the ASIC Moneysmart Super Calculator.

QSuper making waves

Placed at number four in the top performing growth funds in the past decade and named as Australia’s best-performing publicly available balanced option^ in SuperRating’s SR50 Balanced Index (60-76), QSuper could be the fund to watch.

Across the largest 15 superannuation funds, research from Roy Morgan joins that of Chant West to find that QSuper ranks highly, with Roy Morgan data revealing QSuper to be among the highest for member satisfaction in financial performance.

With over 100+ Australian super funds to choose from, comparing your options now with this information in mind could make all the difference when you retire later in life.

^ Based on funds open to the public. Past performance may not be a reliable indicator of future performance. This is the return for the option as it does not take into consideration the timing of contributions, switching or withdrawals. SuperRatings and Chant West do not issue, sell, guarantee, or underwrite this product. Go to superratings.com.au and chantwest.com.au for details of ratings criteria.

The views of the author are not necessarily the views of the QSuper Board. This information is general information only, and you should get professional advice before relying on this information. Past performance is not a reliable indicator of future performance. Each of QSuper’s investment options has a different objective, risk profile, and asset allocation. Visit qsuper.qld.gov.au for more information.

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Learn more about superannuation

How do I choose the right superannuation fund?

Different superannuation funds charge different fees, offer different insurances, offer different investment options and have different performance histories.

So you need to ask yourself these four questions when comparing superannuation funds:

  • How many fees would I have to pay and what would they cost?
  • What insurances are available and how much would they cost?
  • What investment options does it offer? How would they match my risk profile and financial needs?
  • How have these investment options performed historically?

What is the superannuation rate?

The superannuation rate, or guarantee rate, is the percentage of your salary that your employer must pay into your superannuation fund. The superannuation guarantee has been set at 9.5 per cent since the 2014-15 financial year. It 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.

What happens to my insurance cover if I change superannuation funds?

Some superannuation funds will allow you to transfer your insurance cover, without interruption, if you switch. However, others won’t. So it’s important you check before changing funds.

Can I take money out of my superannuation fund?

Superannuation is designed to provide Australians with money in their retirement. The government has strict rules around when people can take that money out of their fund because it wants to prevent people eroding their savings before they reach retirement.

As a general rule, you can only take money out of your superannuation fund when you reach:

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

That said, you can take money out of your superannuation fund early based on one of these seven special conditions:

  • Compassionate grounds
  • Severe financial hardship
  • Temporary incapacity
  • Permanent incapacity
  • Superannuation inheritance
  • Superannuation balance under $200
  • Temporary resident departing Australia

What compliance obligations does an SMSF have?

SMSFs must maintain comprehensive records and submit to annual audits.

Do I have to pay myself superannuation if I'm self-employed?

No, self-employed workers don’t have to pay themselves superannuation. However, if you do pay yourself superannuation, you will probably be able to claim a tax deduction.

Can I transfer money from overseas into my superannuation account?

Yes, you can transfer money from overseas into your superannuation account – under certain conditions. First, you must provide your tax file number to your fund. Second, if you are aged between 65 and 74, you must have worked at least 40 hours within 30 consecutive days in a financial year. (Australians under 65 aren’t subject to a work test; Australians aged 75 and over cannot receive contributions to their superannuation account.)

Money transferred from overseas will generally count to both your concessional contributions limit and your non-concessional contributions limit. You will have to pay income tax on the applicable fund earnings component of any money transferred from overseas. You might also be liable for excess contributions tax.

How do you calculate superannuation from a total package?

Superannuation is calculated at the rate of 9.5 per cent of your ‘ordinary-time earnings’. (For most people, ordinary-time earnings are their gross annual salary or wages.) So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

As the Australian Taxation Office explains, some items are excluded from ordinary-time earnings. They include:

  • Overtime work paid at overtime rates
  • Expense allowances that are fully expended
  • Expenses that are reimbursed
  • Unfair dismissal payments
  • Workers’ compensation payments
  • Parental leave
  • Jury duty
  • Defence reserve service
  • Unused annual leave when employment is terminated
  • Unused long service leave when employment is terminated
  • Unused sick leave when employment is terminated

Although the superannuation guarantee is currently at 9.5 per cent, it 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.

Can I choose a superannuation fund or does my employer choose one for me?

Most people can choose their own superannuation fund. However, you might not have this option if you are a member of certain defined benefit funds or covered by certain industrial agreements. If you don’t choose a superannuation fund, your employer will choose one for you.

What happens if my employer goes out of business while still owing me superannuation?

If your employer collapses, a trustee or administrator or liquidator will be appointed to manage the company. That trustee/administrator/liquidator will be required to pay your superannuation out of company funds.

If the company doesn’t have enough funds, in some cases company directors will be required to pay your superannuation. If the directors still don’t pay, the Australian Securities & Investment Commission (ASIC) might take legal action on your behalf. However, ASIC might decline to take legal action or might be unsuccessful.

So there might be some circumstances when you don’t receive all the superannuation you’re owed.

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

 

What should I know before getting an SMSF?

Four questions to ask yourself before taking out an SMSF include:

  1. Do I have enough superannuation to justify the higher set-up and running costs?
  2. Am I able to handle complicated compliance obligations?
  3. Am I willing to spend lots of time researching investment options?
  4. Do I have the skill to make big financial decisions?

It’s also worth remembering that ordinary superannuation funds usually offer discounted life insurance and disability insurance. These discounts would no longer be available if you decided to manage your own super.

What is superannuation?

Superannuation is money set aside for your retirement. This money is automatically paid into your superannuation fund by your employer.

What is lost superannuation?

Lost superannuation refers to savings in an account that you’ve forgotten about. This can happen if you’ve opened several different accounts over the years while moving from job to job.