We put every effort into ensuring information on Finder is accurate. This article was reviewed by Ryan Watson from our Editorial Review Board as part of our fact checking process.
Your superannuation is a pool of money that will be used to help fund your retirement. Throughout your working life, a small amount of the money you earn each year will be sent to your chosen super fund (instead of your bank account). The idea is that by putting aside a small chunk of your earnings on a regular basis from the day you start your first job, you should have enough money to live on when you retire.
Superannuation is Australia's system for retirement savings, similar to America's 401(k) or the UK pension system. The amount of money held in superannuation assets is currently $3.5 trillion, according to the Association of Super Funds Australia (ASFA). Almost half of that money (49%) is invested in Australian and international shares.
As of June 2019 (the most recent data), the average super balance for males is $162,280 and for females is $146,420. However, the average super balance varies greatly depending on your age group.
According to the latest retirement standard by ASFA you need a balance of $545,000 (or $640,000 for couples) to have a comfortable retirement. The standard age in which you can access your superannuation money is 65, however you may be able to access it earlier if you meet certain conditions.
If you're not exactly sure how super works, don't worry, you're certainly not alone. Finder data shows that 37% of Australians have little or no understanding of what superannuation is and how it works.
The main things to understand about super include the different types of super funds, the superannuation guarantee, how your money is invested and how compounded investment returns work to benefit your balance.
Just like there are many different banks in Australia, there are many different super funds to choose from too (more than 100!).
Two of the main types of super funds are retail funds and industry funds. Retail super funds are owned by large financial institutions like banks or insurance companies, while industry super funds are not-for-profit and owned by members. However, it's more important that you compare super funds based on fees and performance rather than what type of fund it is.
The superannuation guarantee rate is the amount of money Australian employers are required to pay their employees towards their superannuation. The current super guarantee rate is 11.50% of what you earn annually.
This means that your employer must pay at least 11.50% of your annual income into your nominated super fund. While this is the minimum amount they need to pay, employers can choose to pay a higher super rate than this as a company benefit and a way to attract and maintain good staff. The super guarantee rate is scheduled to gradually increase by 0.5% per year until it reaches 12% in July 2025.
While the super guarantee is the minimum amount your employer is required to pay you, you can also make additional contributions to your super yourself on top of this.
Because the super guarantee is a percentage of your earnings this means the more you earn, the more super you'll be paid by your employer.
Let's say you work full time in an office and your annual base salary is $100,000. With a super guarantee rate of 11%, your employer would legally be required to pay you at least $11,000 into your super fund for the year. If the following year you got a pay rise and your salary increased to $120,000, your employer would then be required to pay you $13,200 for that year.
Your employer is required to pay your super at least 4 times per year. Let's say you earn $100,000 and your employer needs to pay you $11,000 in super for the year. This would be broken down into 4 payments of $2,750 instead of the one lump sum payment. Employers can also choose to pay your super more frequently, such as monthly.
The money in your super fund is then invested into a range of different assets like shares, commodities, property and cash on your behalf by the super fund investment team. When you join your super fund, you'll automatically be added to their default investment option that's suited to the majority of people.
However, you can choose a different superannuation investment option if you'd like to. A few reasons why you may choose a different investment option is if you'd like to take on more risk (e.g. high growth super funds), you want to reduce your risk (e.g. conservative super funds) or you want to invest more ethically (e.g. ethical super funds).
Your super benefits from compounded investment returns over your working life to help it grow. When the investments make positive returns, those returns are added into your super balance. Then, future investment returns are made on your entire balance (including the previous returns) which healps your balance grow much quicker.
Because it's essentially one large investment portfolio, your super balance may go down from time to time when the share market and the global economy is struggling (such as during times of recession). However, because your super is invested for such a long period of time, it'll almost certainly be worth a lot more by the time you reach retirement.
| Response | |
|---|---|
| Happy | 45.28% |
| Neutral | 27.46% |
| Very happy | 15.85% |
| Unhappy | 5.51% |
| Very unhappy | 3.44% |
| Unsure | 2.46% |
You are eligible to receive superannuation guarantee payments from your employer if you meet all of the following:
If you're not currently employed you can still open a super account if you're over 18 and an Australian resident and make your own voluntary contributions.
There are many benefits of superannuation, some include:
Here are the main things to look for when choosing a super fund:
If you need a bit more help, our best super fund picks could be a good place to start.
There are a few different ways you can increase your super, including:
Use our free superannuation calculator to see your projected retirement balance, and how this could change by switching funds.
Active Super is an industry fund with more than 85,000 members that's open to all Australians.
Here’s what you need to know about changing super funds including how to do it, the fees that apply, how long it takes and the pros and cons of switching.
Here’s why it’s so important to consolidate your super, and the steps you need to follow to roll over your super today.
Sunsuper is an industry super fund that meets your needs as you move through the workforce and transition into retirement.
Compare the range of accounts Rabobank offers for established self managed superannuation funds.
A comprehensive review of AustralianSuper, its investment options and how it can help you save for retirement.
Aware Super is a low-fee super fund with 12 different ways to invest including a MySuper option and an ethical investment option.
When you start your first job you'll need to open a bank account, a super fund and understand what your tax obligations are.