Australian superannuation
Australian superannuation
Ever wondered how the Australian superannuation system compares
to others around the world? Many countries have systems in place to
give people an income after they have stopped working. They include
public or private pensions, employer pension funds and personal
savings.
Here we explain how super works in Australia.
Super around the world
It is common for retirement incomes to be funded through a
pension system, but these systems can be different from country to
country.
In China, for example, retirement is funded through a mix of
government pension, employer pension funds, and family support.
Japan has a well developed employer-sponsored super fund system.
Family support for older people is common in many Asian countries,
although this seems to be changing.
European countries mostly rely on government pensions as the
primary source of retirement income. For example, in the UK,
retirees will receive a means-tested government pension that may be
supplemented by an employer-sponsored pension. In some European
countries, like Switzerland, pensions are based on average lifetime
earnings.
Retirees in the USA rely on income from personal savings,
private (401K) pension plans and a government benefit based on
lifetime earnings.
Super in Australia
In Australia, retirement income is funded through a mix of
personal savings, a government pension and superannuation
(super).
Super is made up of employer contributions, your own personal
contributions and sometimes additional Government contributions.
Money deposited into your super fund is invested by the fund's
trustee, who aims to grow your account balance while you are still
working.
When you have reached retirement age and stop working, your
super fund is usually converted to a pension that will give you
money to live on. See how super works for more
information.
How money is paid into super
Employer contributions
While you are working, your employer must put an amount equal to
9.5% of your regular wage or salary, as a minimum,
into your super fund. This is an extra payment on
top of your wages or salary. This is known as the super guarantee
contribution (SGC), see employer contributions for more
details
Most employees can choose the super fund their
employers must pay into. There are many different types of
super funds but if you don't choose one yourself, your employer
will choose one for you. This is known as their default fund and
it must have a MySuper account.
If your employer has chosen a fund for you, you can change this
at any time by giving your employer the account details of your
preferred fund.
Your contributions
You can top up your super savings by making personal
contributions to your super fund. If you are on a low income you
may also be eligible for government contributions. See super
contributions for more details.
Looking after your
super
Combine multiple funds
If you have more than one super fund, think about consolidating
your money into a single fund. You'll save on fees and charges and
it will be easier to keep track of.
Smart tip
The fund you have the most money in is not necessarily the best
fund for you. Take the time to compare all your super funds to help
you decide which one to keep.
Consolidating super funds is easy. You can use MyGov, if you
have a MyGov account, or you can contact your preferred super fund
and they will process the transfer for you. Before you consolidate,
make sure you've found all your lost super and that you're not
going to lose any benefits, such as insurance, that you cannot
replace in your chosen fund. See keeping track and lost
super and consolidating super funds for
more information.
Choose an investment option
Once you've settled on a fund, you can choose how your money is
invested. Super investment options
explains how to make investment choices and how your money will be
invested if you don't make a choice.
When choosing an investment option, consider your investment
timeframe as well as the level of risk you are comfortable with. If
you want high returns and retirement is a long way off, you may be
happy to accept a higher level of risk. If you are more cautious or
are closer to retirement you may choose to protect your capital by
choosing a more conservative option.
Sort out your insurance
Most MySuper accounts will automatically give you a basic level
of insurance including life, total and permanent disability and
income protection. Consider what level of cover you need and adjust
the level of cover to suit you. See insurance through super for a
more information.
Getting your super
Before retirement
You cannot withdraw your super until you reach preservation age.
This is between 55 and 60, depending on when you were born. You
must also either be transitioning to retirement or
retiring completely to legally access these funds. See getting your
super for more details.
Severe financial hardship
In very limited circumstances you may be able to access your
super early if you are experiencing severe financial hardship. The
Australian Taxation Office has some useful information on the
early release of superannuation.
At retirement
When you reach retirement you can take your super as a lump sum,
roll it over into an income stream, or a combination of both. Most
people choose to have their income from super paid to them in
some form of income stream to give them the sort of regular income
they were used to when they were working.
You may supplement your super payments with income from other
sources.
It's important to know how super
works in Australia because it is likely to be your main source
of income when you retire.
Related links
Last updated: 04 Feb 2019
