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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.

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 many superannuation funds are there?

There are more than 200 different superannuation funds.

How do you create a superannuation account?

Before you create 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 do I change my superannuation fund?

Changing superannuation funds is a common and straightforward process. You can do it through your MyGov account or by filling out a rollover form and sending it to your new fund. You’ll also have to provide proof of identity.

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

Is superannuation compulsory?

Superannuation is compulsory. Generally speaking, it can’t be touched until you’re at least 55 years old.

How much superannuation do I need?

According to the Association of Superannuation Funds of Australia (ASFA), here is how much you would be able to spend per week during retirement:

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 personal contributions?

A personal contribution is when you make an extra payment into your superannuation account. The difference between personal contributions and salary sacrifices is that the former comes out of your after-tax income, while the latter comes out of your pre-tax income.

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 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.

How do you get superannuation?

You’re automatically entitled to superannuation if:

  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month

How can I increase my superannuation?

You can increase your superannuation through a ‘salary sacrifice’. This is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Like regular superannuation contributions, salary sacrifices are taxed at 15 per cent when they are paid into the fund.

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).

Is superannuation taxed?

Superannuation is taxed. It 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.

How much is superannuation in Australia?

Superannuation in Australia 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 ‘superannuation guarantee’, as it is known, has been 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.

How much extra superannuation can I add to my fund?

There is an annual limit of $25,000 for concessional contributions – that is, money paid by your employer and extra money you pay into your account through salary sacrificing. There is also a limit on non-concessional contributions. Australians aged between 65 and 74 have a limit of $100,000 per year. Australians aged under 65 have a limit of $300,000 every three years.

How much superannuation should I have at age 40?

The amount of superannuation you should have at age 40 is based on how much money you need to have at retirement. That, in turn, is based on how much money you 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

 

 

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.

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.