During your working life you make contributions to your super fund and the earnings you receive are reinvested, building up the value over time. The money that you put into your super fund must generally stay there until you reach retirement, or when you begin your transition to retirement, both after a set minimum age.
As contributions to your super fund and their earnings are generally taxed at just 15%, this makes super one of the most tax-effective investment vehicles.
How does super work?
To understand how super works, it’s important to keep in mind that super is a framework for holding investment assets. It’s not an investment in itself. Super funds can offer a range of investment options and asset classes that may include cash, property, shares and fixed interest. When you put money into your super fund and choose your investment options, you are actually buying units in these investment options (if the super fund is unitised).
The number of units you receive depends on the daily unit price. This price will vary daily according to changes in the market. Money can be put into your super fund by you, your employer, your spouse and sometimes even the Federal Government. Typically, if you are an employee, your employer will contribute at least 9% of your salary to your super fund. This is known as compulsory super.
What types of super funds are there?
There are several different types of superannuation funds. The mains ones are:
• Employer/corporate/staff funds – these are funds established by employers for the benefit of their staff
• Personal funds – as the name implies, you personally join as an individual through a super provider. There are many available and most will offer a wide range of investment choices and other features
• Industry funds – these were originally set up for people working in a particular industry, however many are now available to the public. There is much variation in the features and benefits of these funds (for example, see our News Blog article on Industry Super Income Protection)
• Self-managed super funds (also called ‘do it yourself’ funds) – these can have up to four members and are generally used by people with larger amounts in super or by family groups
Can I withdraw the money that I have in super?
Usually, you are restricted from accessing your super money until you reach your preservation age. Your preservation age is based on your date of birth and ranges between 55 and 60. In very specific circumstances you may be able to access your super funds on compassionate grounds, however these situations are limited.
When can I access my super?
Generally, you can only access your super savings when you reach preservation age. This is to ensure your super savings are used for when you reach retirement. Before you can access your super you need to meet one of the conditions below:
• Reach preservation age and retire
• Reach preservation age and continuing to work
• Changing jobs on or after 60 years of age
• Reach 65 years of age.
How much super is enough?
Your retirement may be a distant thought or it may be just around the corner. Either way, it’s important to know you’ll be able afford the lifestyle you want and deserve.
While Australian employers are required to contribute at least 9% of your salary to super, you need to work out if this will be enough for you to live comfortably in retirement. The amount of super you’ll need will depend on your individual circumstances, such as your current age, current income, desired retirement age, desired retirement income and current super balance.
Is compulsory super enough to meet my needs?
Most Australian employers are required to contribute at least 9% of your salary to super; this is known as compulsory super. Even though compulsory super is intended to help fund your retirement, it may not provide you with enough money in retirement for the lifestyle that you want.
Before you decide that you can solely rely on compulsory super contribution please speak to us.
Can I choose my super fund?
The short answer is yes. Since 1 July 2005, employees, with some exceptions, have been able to choose the super fund their contributions are paid to. The good thing about this is it puts you in control of what could be your biggest source of retirement savings.
JustInvest can help you identify your goals and recommend the super strategies best suited to your individual situation. Contact us for more details.
Source: OnePath, 2011
