Superannuation, or super, is a percentage of your income put aside by your employer over your working life to help fund your retirement.
It’s a compulsory system in Australia that requires contributions to be made, most commonly, into either an APRA-regulated retail or industry superfund (run by a board of trustees) or an ATO-regulated self-managed super fund (run by the members).
Here are three more things every Australian should know about their super:
1. Super should be thought of as an investment like every other
When we talk about investing, many of us automatically think about investing individually in the share market or perhaps investing in property.
What some might not always remember is that superannuation is an investment too. In fact, it could be one of the most important long-term investments you ever make because its purpose is to ensure you have money once you stop actively earning money.
While for APRA-regulated super funds a team of professionals are employed to invest your superannuation savings on your behalf, you do have the ability to decide on your investment strategy.
In the same way, you would determine an asset allocation strategy for your individual investment portfolio, you can also do the same for your superannuation.
For example, most super funds offer a growth, balanced or conservative investment option. Similar to a diversified ETF where the mix of underlying assets is tailored to your return objectives and risk profile, super investment options do the same.
A growth superannuation option often allocates upwards of 70 per cent to growth assets like shares or property, and 30 per cent or less to fixed interest or cash. A conservative option will generally allocate 30 per cent to growth assets and the remaining 70 per cent to income assets.
2. Just like when investing in shares and bonds, keeping costs low is essential when it comes to Super
Like with every investment, the less you pay, the more you get to keep and compound over time. It’s no different when it comes to super.
The easiest way to ensure you manage costs effectively is to consolidate all of your superannuation savings into one account. This will remove any duplicate account or management and possibly insurance fees, and it makes keeping track of your super a lot easier.
Some investors also view tax as a cost. While both contributions to super and their earnings are taxed, they are done so at lower rates (15 per cent) than many investors’ marginal tax rates.
Salary earners can make additional super pre-tax contributions in lieu of take-home pay; generally known as concessional contributions or salary sacrifice contributions. These contributions (up to a cap) are again all taxed at 15 per cent, which may result in tax savings as you reduce your taxable income, and therefore potentially the income tax you pay.
3. Just because retirement is far away, doesn’t mean attention to super should wait
For younger Australians, it might seem backwards to worry about retirement income before you think about meeting other financial goals. But because compounding is so powerful, starting early gives you more flexibility later in life.
Because of this, it’s useful to remember that it’s never too early to save for retirement and that your super deserves consideration well before it’s time to retire.
This could be as easy as checking your super is being paid correctly by your employer or ensuring all your details are accurately provided to your superfund so that your contributions can be claimed (according to the ATO, there’s up to $14 billion in “lost” super because the fund can’t contact its owner).
It’s also as simple as comparing the performance and costs of different super products and funds to find the right investment option and provider for you. Recently under the government’s Your Super, Your Future reforms, superfund providers are required to conduct an annual performance test for their MySuper products to increase transparency for its members. You can read more about it on the APRA website (https://www.apra.gov.au/your-future-your-super)
