What is Superannuation ? [ Superannuation Australia explained in detail ]

Summary

Superannuation is a crucial savings system in Australia, designed to provide individuals with financial support after retirement. It is a percentage of an employee's earnings paid into a super fund by their employer. With various fund types like retail, industry, corporate, and self-managed super funds, Australians must choose wisely, considering fees and insurance options. The introduction of compulsory superannuation in 1992 aimed to reduce the strain on the government pension system. Individuals should regularly assess their superannuation, consolidate accounts, and consider insurance coverage to ensure a comfortable retirement, with suggested savings of $545,000 for singles and $640,000 for couples.

Takeaways

• 😀 Superannuation is money set aside by employers during an employee's working life to support them after retirement.
• 😀 Superannuation was introduced in the 1980s due to the low number of working Australians with super and to reduce reliance on government pensions.
• 😀 The Superannuation Guarantee (SG) mandates that employers contribute a minimum of 9.5% of an employee's earnings to their super fund.
• 😀 All employees in Australia, regardless of employment type or residency status, are entitled to receive superannuation contributions from their employer.
• 😀 There are several types of superannuation funds, including retail, industry, corporate, and self-managed super funds (SMSFs), each with different features.
• 😀 Super funds can charge various fees, including administration, investment, insurance premiums, switching fees, and exit fees, which can affect the overall balance over time.
• 😀 It's recommended to compare the long-term performance of super funds, as small differences in returns can accumulate significantly over time.
• 😀 Consolidating multiple super accounts into one can help reduce unnecessary fees and improve overall financial efficiency.
• 😀 Superannuation funds often offer life insurance, total and permanent disability (TPD) insurance, and income protection, which should be reviewed when changing funds.
• 😀 The Association of Superannuation Funds of Australia's (ASFA) guidelines suggest that singles need around $545,000 and couples need $640,000 to fund a comfortable retirement.
• 😀 There is no fee to transfer super funds, as the government banned exit fees in July 2019 to protect members' money.
• 😀 Lost super is a significant issue, with over 6.2 million unclaimed accounts in Australia, potentially costing individuals due to ongoing fees and insurance premiums.

Q & A

What is superannuation?

Superannuation is money set aside by your employer throughout your working life to support you financially once you retire. It is a mandatory savings system in Australia to help individuals maintain a stable income post-retirement.

Why was superannuation introduced in Australia?

Superannuation was introduced to provide financial support for Australians in retirement and to reduce reliance on the taxpayer-funded government pension. The compulsory system was introduced in 1992 due to the low superannuation coverage, especially among blue-collar workers and women.

How does superannuation work in Australia?

Employers are required to contribute a minimum of 9.5% of your ordinary time earnings into your superannuation fund. These contributions are invested and grow over time, to be accessed upon retirement or when a certain age is reached.

What is the Superannuation Guarantee (SG)?

The Superannuation Guarantee (SG) is a compulsory contribution of 9.5% that employers must pay into their employees' super funds. It is meant to ensure that workers have adequate savings for retirement.

What types of superannuation funds are there in Australia?

There are several types of super funds: retail super funds, industry super funds, corporate funds, and self-managed super funds (SMSFs). Each offers different features, such as varying levels of investment options, fees, and membership requirements.

What factors should you consider when choosing a superannuation fund?

When choosing a super fund, consider factors like lower fees, past investment performance, insurance cover, and the ability to consolidate multiple accounts. It's also important to assess the available investment options and whether the fund aligns with your retirement goals.

What are the common fees associated with superannuation funds?

Super funds typically charge administration fees, investment fees, insurance premiums, switching fees, and sometimes exit fees. These costs vary depending on the fund, so it's important to compare fees when choosing a superannuation provider.

How can small fee differences impact your superannuation balance?

Even a small difference in fees can significantly affect your super balance over time due to compound growth. A 1% difference in fees, for example, can result in a much lower balance when you retire.

How can you avoid paying duplicate fees with superannuation accounts?

If you have multiple super accounts from different employers, consider consolidating them into a single fund to avoid paying multiple annual fees. This is particularly important given the large number of unnecessary super accounts in Australia.

What types of insurance are typically offered through superannuation funds?

Superannuation funds often provide life insurance, total and permanent disability (TPD) insurance, and income protection insurance. These policies can offer financial support if you pass away, become disabled, or are unable to work due to illness.