Factsheet: What is superannuation?
ONLINE TEXT VERSION - July 2014
Super Factsheet #1
Super is money for your retirement. If you haven't started
working yet, it's hard to think of retiring - even the idea of
thinking about what you'll be doing when you're 60 probably seems
crazy. But super is about planning for a retirement that lets you
have the fun life you want - and you need to plan for the
To help you on your super journey, you'll read super stories
from Nat and his friends. Let's meet Nat first.
Nat is 20. He works as an apprentice chef in a downtown
restaurant, earning $28,000 a year. On top of his salary, Nat gets
$2,660 a year in super, which his employer pays directly into a
super fund for him. Before he started this job, Nat already had
$2,000 in super from some part-time jobs during high school.
When you're working
Nat's employer must pay 9.5% of what he earns into a super fund
for him (28,000 x 9.5% = $2,660). This is called the super
If Nat decides to start his own restaurant down the track, he
can pay super into a fund himself. It would be up to him to decide
how much money he wants to put into super each year.
Nat's friend Alex is doing medicine and won't be working for a
while. So that she doesn't get too far behind with her super,
Alex's parents contribute money to a super fund on her behalf.
(Unless Alex has some employment income, she won't be eligible for
Your employer must pay you the super guarantee unless:
- you are paid less than $450 (before tax) per month
- you're under 18 and work 30 hours or less per week.
Choosing a super fund
Nat belongs to his employer's chosen fund (called the default
Nat is happy with this fund because it:
- only charges a small fee for managing his money
- offers insurance benefits, which is important in Nat's line of
Nat could choose to have his super go to another fund if he
If you don't choose another super fund, your super money will
automatically go to your employer's chosen fund (the default fund).
To make sure your super is taxed at a special low rate, any fund
you choose must be a complying fund (this means it meets certain
Fees are very important as they can have a big impact on how
much super you end up with. A 1% difference in fees may not sound
like much, but over 40 years can mean a difference of about 19% in
your final super balance. For example, if your annual income is
$50,000, you could end up with $366,000 in today's dollars compared
to $299,000 after 40 years, a difference of $67,000 (or 18.3%).
Your tax file number
When he started his new job, Nat filled out a tax file number
(TFN) declaration form. Nat's employer passed his TFN on to the
super fund. If you don't give your fund your TFN it may not accept
your contributions or you may pay more tax than you need to. You
might also miss out on the government co-contribution if you are
Your tax file number (TFN) helps keep track of your super, makes
sure your super is taxed at a special low rate, and means there are
fewer restrictions on you making extra contributions.
How super works
Nat's super money is invested by his super fund with money other
people have put into the fund. The money earned on those
investments (returns) is added to Nat's super account. This is
because Nat is in an 'accumulation' fund.
Nat's fund charges a small fee for managing his money, and he
pays $100 per year for insurance cover. The fees and insurance
costs are deducted from Nat's account.
The people who look after your super money are called trustees.
If they don't do what they are supposed to, they can lose their job
or even go to jail.
|Type of fund
||Who can join
||You can join if you work for a particular employer
||Some industry funds are open to everyone.
Otherwise you can join if you work in a particular industry or
under a particular industrial award.
||Anyone can join. Financial institutions run these
|Self-managed super fund (SMSF)
||You and up to three other people can join.
Rolling over your super
Nat was quite young when he first started work. He didn't choose
his own super fund, so his super money from his part-time jobs
during high school automatically went into his employers' default
Nat now belongs to three super funds (including his current
employer's fund). This means he gets three statements about his
super money and has to pay three lots of fees. Nat is also worried
that he'll lose track of his super if he changes jobs again.
Nat decides to consolidate his super by rolling over the money
from his other funds to his current fund. He has to fill out some
paperwork to get it all sorted, but eventually his money is all in
You can get a 'portability form' from the Australian Tax
Office (ATO) to help you rollover your super. Your super fund may
also help you roll over your super.
Making your super grow
Nat has chosen a growth investment strategy for his super. This
means that 70-80% of his money is invested in assets such as shares
This strategy offers higher returns over the long term compared
to other strategies, but it also has higher risks of losing money
in bad years. Because he's still young, Nat has time on his side to
recover from any negative returns.
To help his super grow even more, Nat contributes $1,000 a year
of his own after-tax money into his super fund. This means he gets
extra super money from the government (called a government
When can you get your super?
Unlike the money in his bank savings account, Nat can't take his
super money out whenever he wants to. This is because super is
meant to support you in retirement.
Nat can get his super when he turns 60 and stops working
full-time. (If he becomes sick or is injured and can't work again,
he might be able to take some of it out earlier.)
When he joined his super fund, Nat nominated his parents and his
sister to get his super if he dies before retiring.
Nat's lifetime super decisions
- Nat has some part-time jobs during high
school. Keep track of your super and keep it all in one
super fund if you can. You can have money in more than one super
fund, but all super funds charge fees. Generally it saves time and
money to consolidate your super (that is, bring all your super
together in one fund).
- Nat gets a full-time job as an apprentice chef.
When you're young, it might suit you to choose a 'growth'
or a 'balanced' strategy as you have time to recover from any
negative returns. Consider contributing some of your own money into
super, as you may get a co-contribution from the government, if you
earn under a certain amount. You can generally choose how your
super money is invested. The investment option or strategy you
choose will affect how your super money grows over time. Different
strategies might suit different life stages, and it also depends on
how much risk you're comfortable with.
- Nat is now a fully qualified chef and gets a pay
rise. Consider contributing some of your higher salary to
your super. If you get a bonus, think about putting it straight
into super to boost your savings.
- Nat decides to start his own restaurant.
Review how your super is performing. If you're self-employed, make
sure you keep up your super contributions. You might also lose
important insurance benefits if you stop contributing.
- Nat settles down with a partner and starts a
family. If you or your partner takes time out from work,
see if you can contribute super for each other. Check that you have
adequate insurance benefits through your super fund.
- Nat's restaurant business is booming. He's earning
great money. But he's starting to slow down and plans to retire
soon. Consider making extra contributions to super to
boost your balance before retirement. Review your investment
strategy to ensure it's appropriate for your needs. Consider
getting personal financial advice from a licensed
financial planner about the best option for you.
- After a fabulous farewell party at the restaurant, Nat
celebrates his retirement with a trip to Paris with some
friends. You might take a small percentage of your super
as a lump sum to do something that's fun like take a trip. But you
should think about taking most of your super as a regular income
for your retirement. Budget carefully so that your super money
lasts as long as you do!
Is there an alternative?
As an alternative to super, Nat could open a retirement savings
In a RSA, Nat's money would be 'capital guaranteed'. This means
that Nat would get back at least as much money as he put in.
RSAs tend to use a more conservative investment strategy with a
lower return (similar to interest on a bank account). Super funds
are generally designed to give you better returns over the long
Some reasons why super is great
- Generally, returns earned within your super fund are taxed at a
lower rate compared to money you earn on a bank account or other
investments. This makes super a very good way to invest your money
for the long term.
- If you can afford it, you can add more of your own money to
your super. If you earn less than a certain amount a year, the
government might also make a contribution to your super (called a
- You can only get your money out of super before you retire
under very strict conditions. So even if you're tempted to spend it
on other things, you can't. The money will be there when you need
it later on when you finish working.
- Super helps you save so you have enough money to live on when
- Your employer pays regular contributions into a super fund for
- You can make your own contributions too.
- You can only get your super money when you retire.
- Super is one of the best ways to save money for your
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Last updated: 10 Dec 2014