Welcome to the superannuation series. Designed to get you better informed about all things super.
As a young person in the workforce getting educated on superannuation is super important.
Chances are there are thousands of dollars being paid into your super account every year.
So where the hell is all that money going? What actually happens to it once it gets there? And how much control do we have over where it’s invested?
Now. Disclaimer. I am no money expert. In fact prior to writing this my superannuation knowledge was sketchy at best. But that can be considered a good thing. Because hopefully my simple language and slow-mo breakdown will help other women get a grip on this too.
With that said. Welcome to my three-post series. Please join me as we dive into:
- A young person’s guide to superannuation – what is super and how does it work?
- Gender impacts – does being a woman impact your super? (Hint: YES! A lot.)
- Super Saver – using superannuation to save for a home
Part One: Super basics
So what is superannuation?
Simply put, superannuation is money you accumulate during working years to help provide regular income during retirement.
Australian employers are required to make superannuation contributions on behalf of their employees.
This is known as the “Superannuation Guarantee”. It was introduced by the Federal Government back in 1991.
People who are self-employed are not required to pay their own superannuation but are encouraged to do so.
In essence, superannuation relieves pressure on the age pension by requiring workers to save for retirement.
Currently employers are required to pay superannuation at a minimum rate of 9.5% of your income. This is set to rise to 12% by 2025.
An important side note. This current rate of 9.5% isn’t calculated from your wages or salary alone. It also includes bonuses, commissions, shift loading and casual loading. It does not however include overtime earnings.
So how does superannuation work?
You or your employer pay superannuation to a super fund. That super fund manages your super account for a set fee. Super fund fees are deducted from your super account balance.
In Australia there are five main types of super funds:
- Industry super funds – run to profit members
- Corporate funds – managed by a specific employer or company
- Retail funds – run by financial institutions
- Public sector funds – for Government employees
- Self-managed super funds – where you manage your own money
Your super fund invests your superannuation on your behalf with the aim of growing your account balance.
As a super fund member you can either: choose where your money is invested or let your super fund decide for you.
What if I change jobs?
When you change employers you can direct superannuation from your new employer into your existing super fund. Or, you can start a new account with a different super fund.
If you are changing to a new super fund remember to roll over the balance from your last super fund.
This may sound simple enough but Australia currently has about $14 billion of unclaimed superannuation money floating around.
If you want to check out whether you have any unclaimed super, take a look at this.
A ‘MySuper’ account is a common type of super account that most super funds offer.
These accounts generally offer simple services and lower fees.
Most employers allow you to select a super fund of your own choosing. If you do not specify one, your employer will select a fund on your behalf.
Since 2014 employers have been required to pay superannuation into a fund that offers a ‘MySuper’ account (unless the worker specifies their own preferred alternative fund.)
Even if you have chosen a super fund for yourself, your superannuation will usually end up in one of these ‘MySuper’ accounts.
Single diversified options vs. lifecycle investment options
This is where things can begin to sound complicated. But I promise you they are fairly straightforward.
Basic superannuation accounts normally offer two investment strategies. A single diversified investment option or a lifecycle investment option.
A single diversified investment option takes one single approach to investing your money. This approach is usually a mix of growth and defensive investments. At a split of about 70/30.
A lifecycle investment strategy takes a multi-avenue approach to investing your money. The investment strategy changes depending on how old you are.
While you are younger your superannuation money is invested in higher risk options. As you get older (and closer to retirement) your money is moved into lower risk investments.
The aim is to take on more risk while you are young and more capable of riding the ups and downs of the market.
There are pros and cons to both strategies.
Insurance through your super fund
Something I personally was unaware of is that most super funds offer some form of life insurance with their membership. Insurance options range from death cover, disability insurance and income protection.
These insurance premiums are deducted from your super account balance.
The type of insurance offered by super fund depends on which fund you’re with. Sometimes the default insurance may be more than you need. So it’s a good idea to investigate your insurance options and adjust them accordingly.
So that’s it!
Your first taste of all things super. What I’ve come to understand is that superannuation is a lot more important than I first gave it credit for. Love or hate it, its compulsory and a fair chunk of your hard earned money is directed into superannuation payments.
At the very least we should be aware and educated about how our superannuation money is being handled and what type of fees we are paying.
Some of us may chose to take it a step further and begin making decisions about exactly where we want our money invested. These days most major funds offer easy-to-use phone apps that help you keep track of where your money is currently invested and how your account balance is tracking.
Education is empowerment.
Looking forward to exploring gender impacts to superannuation with you soon. If this has been useful to you, please share it with a friend. Read more work-related posts here.
Until next time,