Superannuation is a form of saving for retirement. Here’s how to find the best super fund for your needs.
Superannuation is a way of building up a nest egg over time so that you will have money to fund your lifestyle when you are no longer working. While superannuation is mandatory, there are diverse choices of available funds. The right super fund can be extremely beneficial, and all working Australians should take the time to make sure they’ve found the best super for their needs. However, what you consider to be the “best” depends on your situation, as well as personal preference.
There are several different types of super funds, and this guide looks at retail and industry funds. For information about self-managed super funds (SMSFs) take a look at our comprehensive SMSF guide instead.
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What is superannuation?
Superannuation is basically a large investment portfolio with tax benefits, and is a way of ensuring that you will have a source of income in retirement to minimise the need for government assistance in the form of the aged pension. It has other advantages as well: it gives fund members access to cheaper insurance such as life, disability and income protection cover. It's also taxed at a lower rate (15%) during the accumulation phase, which makes it a very attractive form of investment through financial growth.
In the past, people relied on their personal savings in retirement and often topped up with a government pension, but things are changing. We are now living up to 20 years longer in retirement and our superannuation is an important source of income if we want to maintain a reasonable standard of living when we’ve left the workforce.
Superannuation works in the following way
- Your employer makes compulsory contributions on your behalf (currently 9.5% of your gross salary) into a super fund that you or your employer nominate.
- You have the option of making your own contributions as well, and the government may also contribute if you are a low- or middle-income earner.
- Your superannuation fund invests the money on your behalf and it grows steadily over many years, accelerating in the last few years when the sum is greater.
- You retire from working life and access your super, either in the form of a lump sum payment or as a regular income stream.
Is superannuation compulsory?
Yes, all Australian employers are required to pay superannuation to their employees. This is currently 9.5% of the employee's annual earnings, and is called the Superannuation Guarantee. Employers need to pay super into their employee's nominated fund at least four times a year. Australians who are self-employed generally are not required by law to pay themselves super, but it’s definitely a wise idea to do so.
There are a few situations where employees are not legally required to pay superannuation, including:
- If the employee earns less than $450 a month
- If the employee is under 18 and works less than 30 hours per week
- If the employee is not an Australian resident and completes the work outside of Australia
Different types of super funds
There are two main types of super funds: accumulation funds and defined benefit funds. Defined benefit funds are very rare, so this guide discusses accumulation funds in detail. There are various types of accumulation funds available to Australians, which are outlined in the table below.
|Super fund type||Description|
|MySuper||Under Australian law, most employers are required to offer a MySuper-type fund as a default option for people who cannot (or don’t wish to) select their own fund. These are generally found as defaults, but you may also nominate a MySuper fund.It’s designed to be a safe option for most Australians, and is characterised by:|
|Retail funds||Widely-available commercial products, operated by financial institutions to turn a profit for themselves and their customers. These will typically be nominated, rather than selected as a default.|
Retail funds can vary widely, but are often characterised by:
|Industry funds||These superannuation funds are generally designed for workers in a specific industry, and may be especially beneficial. Some industry funds are restricted to workers in a specific industry, while others are open to everyone.|
Industry super funds will often be available as a default, or might be nominated. Sometimes a super fund will be both an industry fund, as well as a MySuper fund. The key difference between these funds and retail funds is that they are owned by members not shareholders.
They can vary widely, but are often characterised by:
|Corporate funds||These are super funds a business offers to its employees. They might be exceptionally competitive, such as in the case of defined benefit funds. Naturally these will typically be found as default funds with various advantages and features.|
|Self-managed super fund (SMSF)||The do-it-yourself super fund. You are responsible for investing your superannuation, as well as looking after the tax and legal obligations that go along with it. These are explained in more detail in this guide.|
How do I compare and choose a super fund?
The best super fund is the one that has all the benefits and features you want, and invests your money in a cost-effective way. It should also leave you feeling comfortable in the knowledge that you will receive a healthy sum in retirement. An SMSF might be best for some people, while others might want to use an industry or corporate super fund, nominate a retail fund or just stick with a default MySuper.
When comparing different super fund options alongside one another, you might want to consider:
- Investment options and historical performance
- The fees
- The insurance options
- Any other benefits
Let’s take a look at these features in more detail.
Investment options and historical performance
Managed super funds (which are almost all funds other than SMSFs) have professionals who invest members’ money on their behalf. Historical performance, typically expressed as a percentage, is generally a measure of the return on investment previous members have earned. You’ll mostly want to look at the fund’s performance for the last five years, and can generally discard anything older than that.
However, historical performance isn’t everything. Most super funds will remind you that “past performance is not an indication of future performance” and some people may also want to sacrifice a bit of average performance for:
- Options available. Some people might just prefer the range of investment options offered by one super fund over another, such as being able to pick their investments by industry rather than life stage.
- How much control you have. Some people might want a managed super fund that still lets them do some of their own investing. Others might be particularly keen on the forex market, share trading, property or other investment types, and want a super fund that lets them put their money where they want it most.
- Ethical investing. Some people would prefer their savings to be invested ethically, such as renewable energy rather than coal mining, and medical supplies rather than weapons manufacturers. Many people are looking towards ethical investment super funds.
As with most fees generally, the lower the better. Consider:
- Whether they’re worth it. You might come out ahead paying more fees for better investment returns, or it might not be worth it.
- When they apply: Different types of investment might result in different fees, while some super funds might charge additional fees for certain services (such as if you need advice) where others don’t.
- Exactly how much you’re paying: Superannuation fees can be extremely confusing. Ideally you’ll want to understand exactly how much you’re paying in fees. If you aren’t sure, you may want to contact a super fund directly for some help piecing it all together.
Once you know how much you can expect to pay in fees, you can balance it next to the benefits to determine the advantages.
The insurance options
Most super funds offer insurance policies within your account, which are often slightly discounted. Generally, you can only find superannuation insurance to pay out in the event of:
- Death (life insurance)
- Total and permanent disability (TPD insurance)
- Temporary inability to work (income protection insurance)
To compare the insurance cover offered by two different super funds you may want to look at:
- The types of cover: Do they both offer life, TPD and income protection insurance, or does one of them offer fewer cover types? Do they even offer any insurance at all?
- The payout: How much is paid out for each of the three cover types?
- The premiums: How much is it costing you?
- Is it automatic: Some providers offer younger members insurance on an opt-in basis, meaning they can add it if they’d like but don’t automatically receive it when opening the account.
All three insurance types can be found through super funds, or outside of superannuation instead. However, they work a bit differently in each case. In very basic terms, you might think of super insurance as the cheap “no-brand” option, and insurance outside of super as the “deluxe brand name” option. Depending on your situation, you might want to have it all inside super, all of it outside super, or a combination of both.
Any other benefits
Some supers might have additional benefits. For example, a corporate super fund might come with a contribution-matching deal, where your company pays extra into your super fund based on how much extra you voluntarily contribute. Or, an industry super fund might offer a range of industry-specific training for members, or a retail fund might include the chance to attend investment seminars.
You can find a different range of extra benefits depending on your situation, and it may be well worth considering them.
How do I make contributions to my superannuation?
Individuals can grow their superannuation in four main ways:
- Employer contributions. This is the main source of money paid into an individual’s superannuation account. According to the Superannuation Guarantee, an employer must pay at least 9.5% of an employee’s gross salary into their super account every quarter.
- Concessional contributions. You can arrange for your employer to pay some of your pre-tax salary into your super fund as an additional contribution. This is beneficial, as the pre-taxed salary will only be taxed at the concessional super rate of 15%, also known as salary sacrifice. However, your contribution allowance is capped at a maximum of $25,000 a year including all your employer and concessional contributions.
- Non-concessional contributions. A non-concessional contribution is one you make from your post-tax salary. That means, you’ve already received the money into your account and paid the full tax rate. The cap for these contributions is currently $100,000 a year.
- Government contributions. You may be eligible for the government super co-contribution if you earn below a certain salary. This means that if you choose to make non-concessional (post-tax) contributions, the government will add $0.50 for each dollar you deposit. More details on this are in the following section.
How do government super contributions work?
If you are eligible for either of these, they will happen automatically if you meet the requirements. It is unnecessary for you to apply directly for them.
The two main ways the government might help grow your super are:
- Co-contributions. The government may pay up to $500 per year into your super fund, equal to an amount that is up to 50% of your voluntary super contributions. This may be available if you earn less than $51,813 per year (after tax), and might be especially beneficial if you earn less than $36,813 per year. See the full co-contribution eligibility requirement, and how it works.
- LISTO. This is the Low Income Superannuation Tax Offset. Eligible individuals who earn less than $37,000 per year may get up to $500 per year bonus superannuation contributions, generally meant to make sure you aren’t unfairly paying more tax on your super than your take-home pay. Check the LISTO eligibility requirement and see how it works here.
How to maximise your super
Many people ignore their superannuation without looking after it. This is a mistake, as there are some straightforward steps that will help you maximise your super in the long run. Here are a few suggestions:
- Take advantage of tax breaks. Contributions to super made by or on behalf of employees and which are financed out of pre-tax income are taxed, in effect, at 15%. This generates a valuable tax saving for most people, since most employees have a marginal tax rate of at least 32.5%. Direct part of your pre-tax salary into your super and this is a smart way to maximise your savings.
- Dump your fund if necessary. Make sure you are constantly monitoring your fund's performance, especially long-term. If the investment option is performing poorly, it's time to do something. You may be able to switch investment options but sometimes you will have to change super funds entirely. It's also important to check insurance fees rather than just the fund's performance.
- Accept more risk. Generally the greater the risk the greater the potential return. One of the best ways to get more from your super involves adopting an age-based investment strategy. This includes working out how much risk you can afford to take based on your years to retirement. Age is crucial because if you have more years to your retirement, you'll have more time to recover from a major setback and can comfortably accept more risk.
- Start early, make more. Starting to save from an early age can make a huge difference to how much you have when you retire, mainly due to the power of compounding. For example, if someone saved $10,000 a year for 20 years while someone else saved the same amount for 35 years, both earning a return of 6% a year, the 20-year compounding amount would generate $367,856 compared to the 35-year saver which would generate $1,114,348 – more than three times as much.
What is lost super, and how do I find it?
Losing some of your superannuation is easier than you think. If you’ve changed jobs or moved house, you may have some lost super. Lost super is when your fund cannot contact you, and if your fund hasn’t received any contributions in five years.
But don’t worry, you can find your super and claim it back! If you suspect you may have some lost funds, you can create a myGov online account to search for any missing super. When you find it, you can easily claim it back and consolidate it to your current fund. For more details on finding and reclaiming lost and unclaimed super, check out our comprehensive guide.
Accessing your super
Because superannuation is designed to fund your senior years, you generally can only access it once you reach retirement. The earliest opportunity you have to access your super is when you reach your preservation age, which is determined by the year you were born as shown in the table below.
|The year you were born||Your preservation age|
|Before 1 July 1960||55|
|1 July 1960 to 30 June 1961||56|
|1 July 1961 to 30 June 1962||57|
|1 July 1962 to 30 June 1963||58|
|1 July 1963 to 30 June 1964||59|
|From 1 July 1964||60|
There are some situations where your may be eligible to access your superannuation before your preservation age. These include if you have a total and permanent disability, a terminal illness or are experiencing extreme financial hardship. For more information about accessing your superannuation, read our comprehensive guide here.
How is super taxed?
Superannuation is designed to help Australians save for retirement, so it’s taxed at a much lower rate than your regular income. Super is taxed at 15%, compared to your regular income which can be taxed as high as 45% depending on your income.
You gain the tax benefit through concessional contributions, such as your employer paying you the superannuation guarantee or if you choose to contribute extra to your super out of your pre-taxed income. However, the amount you can add to your super each year to get the tax benefit is capped.
Keeping track of your super
Generally, Australians are quite disengaged from their superannuation. If you don’t monitor it regularly, how do you know how it’s performing? At the very least, super funds are required to send you account statements twice a year which will outline all the contributions made into your account, the fund’s performance and the fees you’ve paid.
However, it’s important to look at your super more than twice a year. Most funds will have an online portal you can log into and see an up-to-date transaction history for your account. This is also where you can make any changes to your insurance cover or investment strategy, if you’re not satisfied with how it’s performing. Some funds also offer a dedicated mobile app so you can keep track of your super on the go, like you would a normal bank account.
I’ve just started a new job, how do I set up my super?
When you start a new job, you’ll need to supply your new employer with your Tax File Number, and they will provide you with a form to fill out your superannuation fund details. You can find all the necessary details, such as your fund account number and membership number on your latest account summary or via the online portal. If you’re not sure how to access this, give your fund a call and ask for some assistance getting the details you need.
If you don’t yet have a super fund (for example if it’s your first job) you’ll have the opportunity to select one. If you don’t wish to select your own, employers are required to offer a default fund option called a MySuper fund. A MySuper fund is a basic super fund, with relatively standard fees and an investment strategy that is based on your age. Most major retail and industry funds offer a MySuper product.
Changes to superannuation legislation in 2017 that may affect you
There were many changes to superannuation legislation which took effect from July 2017. Some of the key changes that may affect you include but are not limited to:
- The annual limit for concessional contributions (pre-tax contributions, including those from your employer) has been lowered from $30,000 to $25,000. The annual limit for non-concessional contributions (after-tax) is now $100,000.
- If you earn over $250,000 your concessional super contributions will be taxed at 30% instead of the standard 15%. This has been reduced from $300,000.
- If you earn under $37,000, the ATO will refund the tax you paid on super contributions (even the compulsory super paid by your employer). This is capped at $500 a year.
- The age from which you’re eligible to start receiving your aged pension began increasing from July 2017. Previously 65, it will slowly increase and reach age 67 by 2023.
What to do before switching super funds
Look out for any exit fees or hidden penalties before joining or switching, and check that they don’t cancel out the benefits of changing. Also consider any forms of insurance you may have with your old fund. If you lose this cover by switching funds, it may be harder to get equivalent cover, especially if you are over 60 years of age or have pre-existing medical conditions.
Generally you are able to switch at any time you want, but you should note that cancellation or exit fees may apply. If you’re fortunate enough to have a defined benefit fund, you’ll also want to think twice before abandoning it. It’s also a good idea to do a check for any lost super funds you might have, and consolidate them where possible.
Got it! What now?
Now that you understand how superannuation works and how to choose the best fund for you, it's time to do just that. Head to our comparison table at the top of this page to compare funds, and click "Go to Site"if you'd like to open an account or learn more about the fund.