What is superannuation? Everything you need to know about super
Superannuation is like an investment account for your future self – the ultimate nest egg. It’s something to support us during retirement, and something to count on. It can also provide a tax-effective way to save for your retirement -we’ll explain more on that later.
But what actually is superannuation?
Superannuation – a brief history
Superannuation might seem like it’s been around a lifetime but in reality, it’s still relatively new in Australia. The system we now know began in Australia during the 1980s. At that time it was generally limited to public servants and white-collar employees of large corporations.
Compulsory superannuation as we know it today was introduced by the Keating Government in 1992 to help support the welfare system. Before compulsory superannuation, people in retirement generally relied on the age pension for support, but the Government foresaw a big problem. People started living longer, and the population was booming, so when it came time for the working population to retire, the Government knew the current welfare system wouldn’t cope. That’s why compulsory superannuation was introduced.
Today, it’s vital that the Government safeguards the superannuation system to ensure that as many Australians as possible can support themselves when they retire.
So we’ve all got the same agenda – a good superannuation system means you’re more likely to be self-funded in your retirement and the Government has less pressure to support the population.
What is superannuation and how does it work?
Much like the money in your bank account, superannuation is your hard-earned money. The money doesn’t belong to your employer or the Government – it is your asset and yours to invest through a super fund that you feel confident in. It’s money to live off when you retire and for many of us, our super is also the largest savings fund we’ll ever have.
The Government has rules that require your employer in most circumstances to pay a percentage of your earnings into your super account. You’re also able to make personal savings by making voluntary contributions to your superannuation. Your super fund’s job is then to invest that money until you’re ready to retire.
Even though it’s your money, you can generally only withdraw money from your super in certain circumstances: these include when you retire on or after your preservation age; when you turn 65; if you’re suffering financial hardship; or if you have specific medical conditions or meet other compassionate grounds conditions.
Who is eligible for super?
Generally, your employer must pay you super if you’re:
1. 18-years-old or over
2. Under 18-years-old and working more than 30-hours a week.
Your employer is not currently required to pay you superannuation if you earn less than $450 per month working for them. However, as of 1 July 2022 this rule will be abolished and they will need to pay you regardless of how much you earn.
Note: You’re entitled to super even if you work casually, part-time, full-time, and are a temporary resident. If you’re a low or middle-income earner, you might be eligible for super contributions from the Government.
If you’re self-employed, it’s up to you to sort out your own super, which can feel like an intimidating process, but it doesn’t need to be. Finding the right super fund for your needs is an important first step, as is starting with small regular payments to maximise compound interest.
How is super calculated?
Compulsory super contributions are calculated simply by multiplying your pre-tax salary or wages by 10.5% (from 1 July 2022). This is known as the ‘super guarantee’ (SG) and it’s the minimum amount your employer needs to pay into your super.
The SG is currently set to rise to 12% by July 2025.
How do I find lost or unpaid super?
If you suspect you have any lost super (i.e. if you suspect you have a super fund you have forgotten about), you can log into your MyGov account to locate it. If you join Verve, we can also support you to consolidate any lost or inactive accounts you find into your Verve Super account.
Consolidating your super accounts can help you to keep track of your retirement savings and may help you to avoid multiple sets of fees. It’s important to consider the impact of any loss of insurance cover or other benefits before closing any super fund accounts you may have.
It’s very important to check that your employer is regularly paying you super. Just because a superannuation amount is listed on your payslip doesn’t mean that this amount is actually being paid into your super account. Sadly it’s all too common for people to miss out on significant super payments if the business they work for goes bankrupt and has not paid them super for some time.
If you think your employer isn’t paying you super, the Australian Taxation Office (ATO) advises taking a range of steps including:
1. Confirming you’re eligible for super
2. Logging into your MyGov account and viewing your super contributions that have been paid into your super fund by your employer.
3. Using the estimate my super tool
4. Ask your employer how often they’re paying you super and which fund they’re paying into
5. Login to your fund’s member portal where you should be able to see your transaction history
6. Check your superannuation member statements to confirm how much your super fund has received
7. If you’ve done all that, you can report your employer using the ATO’s online tool
What do super funds do with your money?
Once your money is sitting in your superannuation fund, it’s invested into different assets. The main assets super funds invest in include: shares, property, cash, bonds and other fixed-interest investments, private equity, and infrastructure.
Assets are normally divided into two groups: growth or defensive assets. Growth assets are expected to provide growth over the long term and tend to be higher risk, but offer potentially higher returns over the long term. Defensive investments tend to be lower-risk and historically produce lower returns over the long term.
At Verve we offer a balanced investment option designed to provide members with the highest possible returns, consistent with a balanced investment strategy, while balancing risk. Verve invests in a diverse mix of assets and targets a 65% investment in growth assets (like shares and property) and 35% investment in defensive assets (like fixed interest and cash.) We invest ethically in companies that score highly on gender equality and also seek specific impact investments that support women, our communities, and our planet.
If you’re not a Verve Super member and want to learn more about ethical investing through superannuation, read more about how we invest ethically.
How much super do you need?
Working out how much super you need can feel like a guessing game. If you’re 30, how do you know how much money you’ll need when you’re 65? It also depends on how you’d like to live when you’re older and your future costs in retirement.
There isn’t a ‘magic number’ (spoiler!) for how much super you’ll need, but there are some useful ways to calculate how much you might need to live comfortably in retirement.
As a rough guide, the Association of Superannuation Funds of Australia (ASFA) estimates a single person will need around $880 a week ($45,962 a year) to live comfortably. As a couple, ASFA says you’ll need around $1241 a week ($64,771 a year) to live comfortably.
We dive into the $1 million myth here and debunk how much money you really need for retirement.
How do I increase my super?
As well as the money your employer pays, you can grow your super by making your own (personal) contributions to your account.
You may be able to ‘salary sacrifice’, which is a way to potentially minimise tax payable on your income as you do not pay income tax on the amount of your salary that goes into your super fund. However, your super fund will deduct 15% of that in contribution tax. You can also contribute to super from your after-tax income and may be able to claim tax back from these contributions in your tax return. For more general information, see our Additional Information Booklet, or for advice that takes into your personal financial objectives, situation and needs, we recommend you speak to a professional adviser.
You can also do what’s called ‘contribution splitting’ where before-tax contributions, like superannuation payments made by your partner’s employer, are directly transferred from your partner’s super account into yours. Your partner is effectively splitting their super with you.
A couple of things to be mindful of:
- There are also limits or ‘caps’ on the amount you can contribute to your super each financial year without paying additional tax. If you’re planning to contribute more than $27,500 (for the 2021/22 financial year) to your super (including your employer contributions) in any one financial year — you should seek professional advice.
Thinking about ethics and superannuation
It’s important to understand that your super fund invests your retirement savings on your behalf into a range of investments. These investments typically include companies listed on major stock exchanges. As a result, most Australians are investing their superannuation (often without knowing) into helping industries like: tobacco, gambling, weapons, and fossil fuels to grow.
Ethical funds like Verve, take ethics and values into account when we invest. We do this for two reasons, firstly because we believe that investing in ethical companies with strong social governance leads to better long-term returns. Secondly, we know that many Australians don’t want their money funding harmful industries. There are some really amazing things that we can invest in instead, and superannuation is a powerful pool of money to invest for a better world. That’s why we choose to only invest in ethical companies and opportunities that are building the kind of future we want to see.
This blog is published by Verve Superannuation Pty Ltd (ABN 65 628 675 169, AFS Representative No. 001268903), which is a Corporate Authorised Representative of True Oak Investments Ltd (ABN 81 002 558 956, AFSL 238184), as the Sub-Promoter of Verve Super.
Verve Superannuation Pty Ltd and True Oak Investments Ltd are not licensed to provide personal financial advice. The information contained in this blog, including any financial guidance, is general in nature. You should consider seeking independent legal, financial, taxation or other advice to ensure that your financial decisions are suited to your unique circumstances.
You should read the Product Disclosure Statement, Additional Information Booklet, Insurance Guide, Target Market Determination and Financial Services Guide before making a decision to acquire, hold or continue to hold an interest in Verve Super. When considering financial returns, past performance is not indicative of future performance.