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Learn more about superannuation

If you’re joining a super fund for the first time or looking to switch funds, it’s worth considering the different types of superannuation funds out there and the features of each.

There are lots of superannuation funds to choose from, so you don’t just have to pick the most common fund or your employer’s chosen fund. Taking the time to do some research and choose the best fund for your needs can have a big impact on your financial standing during retirement.

What is a superannuation fund?

Superannuation (commonly known as ‘super’) is money that’s put aside and invested while you’re working so you’ll have money to live off when you retire. A super fund operates as a trust where your money is collected with other members' money and invested on your behalf by a trustee. Generally, you will not be able to access your super money until you retire.

If you’re employed, your employer will make contributions to your chosen super fund on your behalf, and you can also make additional voluntary contributions of your own. If you’re a low-income earner, the government may also make contributions to your super fund for you.

What are the types of superannuation funds?

Understanding the different types of super funds will make it easier to choose one that’s right for you. Each superannuation fund falls into one of the following categories:

MySuper

MySuper funds are a replacement for existing default accounts offered by super funds. Your employer must pay your employer contributions into a MySuper account if you don’t nominate a fund yourself. Different types of funds (such as industry funds and public sector funds) may offer MySuper accounts.

MySuper accounts typically offer:

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

This type of fund allows you to manage your investments into two ways:

  • Single diversified investment strategy – Your money is put in a standard mix of investments with the same risk-reward approach for your whole life.
  • Lifecycle investment strategy – Your money is moved from growth investments when you're younger to more conservative investments when you're older. This allows you to take on more risk when you’re younger and can afford to wait out the peaks and troughs of the market.

Retail funds

Retail funds are commonly run by banks or investment companies, and they can usually be joined by anyone. The fund’s shareholders expect to receive a return on their investment, and a percentage of the profits of these retail super funds goes to the shareholders. Common features include:

  • A large number of investment options, which could be beneficial if you want more control over where your money is invested
  • Mid to high fees
  • Usually accumulation funds

Industry funds

Some industry funds are restricted to employees in a specific industry, whereas other larger funds are open to anyone. Common features include:

  • Operating as ‘not-for-profit’, which means any profits earned are invested back into the fund for the benefit of members
  • Relatively low fees
  • Low number of investment options, which may still be sufficient for the average person
  • Usually accumulation funds

Public sector funds

Most public sector super funds are only open to government employees. Common features include:

  • Contributions above the required minimum, in some cases
  • Low fees
  • Profits put back into the fund for the benefit of members
  • Defined benefits funds for some longer-term members, and accumulation funds for newer members

Corporate funds

Corporate funds are set up by employers for employees and may have an employer who also operates the fund under a board of trustees. They can also be included as a separate part of a large retail or industry super fund. Common features include:

  • Low to mid cost for big company funds, and a higher cost for smaller employers
  • A wide range of investment options for those that are part of a larger fund
  • Both defined benefits funds and accumulation funds
  • A mix of not-for-profit and for-profit funds

Eligible rollover funds

Eligible rollover funds (ERFs) are holding accounts for lost or inactive members with a low account balance. These funds vary in terms of fees and returns, and can be consolidated with active super funds.

Self-managed super funds

A self-managed super fund (SMSF) offers full control over where your money is invested. An SMSF is a private superannuation fund that you manage yourself, and is regulated by the Australian Taxation Office (ATO).

These funds are generally only suitable for people with a thorough understanding of the financial and legal responsibilities of managing a super fund. Set-up and running costs can be expensive, so it’s usually worth the cost only if you have a large balance.

What’s the difference between accumulation funds and defined benefits funds?

Today, most types of superannuation funds are accumulation funds. They’re called ‘accumulation’ funds because your money grows over time. Factors affecting the value of your accumulation fund super include:

  • Your employer contributions
  • Your voluntary contributions
  • How much you receive in bonus contributions
  • How much your fund earns from investing your super
  • Fees charged
  • Your chosen investment options

Defined benefit funds, on the other hand, are uncommon corporate or public sector funds. They’re called ‘defined benefit’ because you get paid a set amount (based on a formula) once you retire. Most defined benefit funds are closed to new members. Factors affecting your defined benefit fund super value include:

  • Your employer contributions
  • Your voluntary contributions
  • Your length of employment
  • Your salary at retirement

In many cases, it’s advisable to stay with a defined benefit fund rather than switching to an accumulated fund. However, every fund is different, so it’s worth talking to a professional if you’re part of a defined benefit fund and thinking about changing.

What happens to my super money?

Regardless of the type of fund you’re a member of, your super money will be invested by your super fund’s trustee. Investment options differ between funds, but usually include a mix of different asset categories, as well as single-sector options such as cash, property and shares.

Returns on your investment will depend on the investment options you choose, so it’s important to consider what’s best for your circumstances. For example, if you’re under 30, you might be willing to take on higher-risk investments and transition to more stable investments as you move towards retirement.

When you retire, you can choose to access your super money as a lump sum, a regular income stream, or a combination of both.

How to choose a superannuation fund

When choosing a new super fund, consider:

  • The pros and cons of your current fund (if you have one)
  • Your current financial standing
  • The industry in which you’re employed and the types of funds available to you
  • Your knowledge of financial markets
  • How long you have until retirement

Every type of fund is different, so it’s important consider the benefits and drawbacks of each given your circumstances. Compare superannuation funds for your age, current super balance and preferences to find one that works for you.

Frequently asked questions

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 many superannuation funds are there?

There are more than 200 different superannuation funds.

What is the difference between accumulation and defined benefit funds?

A majority of Australians are in accumulation funds. These funds grow according to the amount of money invested and the return on that money.

A minority of Australians are in defined benefit funds – many of which are now closed to new members. These funds give payouts according to specific rules, such as how long the worker has been with their employer and their final salary before they retired.

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 is MySuper?

MySuper accounts are basic, low-fee accounts. If you don’t nominate a superannuation fund, your employer must choose one for you that offers a MySuper account.

MySuper accounts offer two investment options:

  1. Single diversified investment strategy

Your fund assigns you a risk strategy and investment profile, which remain unchanged throughout your working life.

  1. Lifecycle investment strategy

Your fund assigns you an investment strategy based on your age, and then changes it as you get older. Younger workers are given strategies that emphasise growth assets

How long after divorce can you claim superannuation?

You or your partner could be forced to surrender part of your superannuation if you divorce, just like with other assets.

You can file a claim for division of property – including superannuation – as soon as you divorce. However, the claim has to be filed within one year of the divorce.

Your superannuation could be affected even if you’re in a de facto relationship – that is, living together as a couple without being officially married.

In that case, the claim has to be filed within two years of the date of separation.

Either way, the first thing to consider is whether you’re a member of a standard, APRA-regulated superannuation fund or if you’re a member of a self-managed superannuation fund (SMSF), because different rules apply.

Standard superannuation funds

If your relationship breaks down, your superannuation savings might be divided by court order or by agreement.

The rules of the superannuation fund will dictate whether this transfer happens immediately, or in the future when the person who has to make the transfer is allowed to access the rest of their superannuation (i.e. at or near retirement).

Click here for more information.

SMSFs

If your relationship breaks down, you must continue to observe the trust deed of your SMSF.

So if you and your partner are both members of the same SMSF, neither party is allowed to use the fund to inflict ‘punishment’ – such as by excluding the other party from the decision-making process or refusing their request to roll their money into another superannuation fund.

This no-punishment rule applies even if the two parties are involved in legal proceedings.

Click here for more information.

Financial consequences

Superannuation funds often charge a fee for splitting accounts after a relationship breakdown.

Splitting superannuation can also impact the size of your total super balance and how your super is taxed.

Click here for more information.

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 much superannuation should I have?

The amount of superannuation you need to have at retirement is based on how much money you would expect to spend each week during your retirement. That, in turn, depends on whether you expect to lead a modest retirement or a comfortable retirement.

The Association of Superannuation Funds of Australia (ASFA) estimates you would need the following amount per week:

Lifestyle Singles Couples
Modest $465 $668
Comfortable $837 $1,150

Here is the superannuation balance you would need to fund that level of spending:

Lifestyle Singles Couples
Modest $50,000 $35,000
Comfortable $545,000 $640,000

These figures come from the March 2017 edition of the ASFA Retirement Standard.

The reason people on modest lifestyles need so much less money is because they qualify for a far bigger age pension.

Here is how ASFA defines retirement lifestyles:

Category Comfortable Modest Age pension
Holidays One annual holiday in Australia One or two short breaks in Australia near where you live Shorter breaks or day trips in your own city
Eating out Regularly eat out at restaurants. Good range and quality of food Infrequently eat out at restaurants. Cheaper and less food Only club special meals or inexpensive takeaway
Car Owning a reasonable car Owning an older, less reliable car No car – or, if you do, a struggle to afford the upkeep
Alcohol Bottled wine Casked wine Homebrew beer or no alcohol
Clothing Good clothes Reasonable clothes Basic clothes
Hair Regular haircuts at a good hairdresser Regular haircuts at a basic salon Less frequent haircuts or getting a friend to do it
Leisure A range of regular leisure activities One paid leisure activity, infrequently Free or low-cost leisure activities
Electronics A range of electronic equipment Not much scope to run an air conditioner Less heating in winter
Maintenance Replace kitchen and bathroom over 20 years No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom No budget to fix home problems like a leaky roof
Insurance Private health insurance Private health insurance No private health insurance

What are ethical investment superannuation funds?

Ethical investment funds limit themselves to making ‘ethical’ investments (which each fund defines according to its own principles). For example, ethical funds might avoid investing in companies or industries that are linked to human suffering or environmental damage.

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.

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.

How do you find 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.

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.

What will the superannuation fund do with my money?

Your money will be invested in an investment option of your choosing.

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.

When is superannuation payable?

Employers must pay superannuation at least four times per year. The due dates are 28 January, 28 April, 28 July and 28 October.

Is superannuation paid on unused annual leave?

If your employment is terminated, superannuation will not be paid on unused annual leave.

Is superannuation paid on overtime?

As the Australian Taxation Office explains, there are times when superannuation is paid on overtime and times when it isn’t.

Here is the ATO’s summary:

Payment type Is superannuation paid?
Overtime hours – award stipulates ordinary hours to be worked and employee works additional hours for which they are paid overtime rates No
Overtime hours – agreement prevails over award No
Agreement supplanting award removes distinction between ordinary hours and other hours Yes – all hours worked
No ordinary hours of work stipulated Yes – all hours worked
Casual employee: shift loadings Yes
Casual employee: overtime payments No
Casual employee whose hours are paid at overtime rates due to a ‘bandwidth’ clause No
Piece-rates – no ordinary hours of work stipulated Yes
Overtime component of earnings based on hourly-driving-rate method stipulated in award No

Can I carry on a business in an SMSF?

SMSFs are allowed to carry on a business under two conditions.

First, this must be permitted under the trust deed.

Second, the sole purpose of the business must be to earn retirement benefits.

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 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.