What is superannuation?

Superannuation is the main way of saving for your retirement in Australia. Your superannuation is one big investment portfolio in your name that's managed for you by your super fund.  

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Superannuation is likely to be your most-valuable financial asset when you retire. If you're not exactly sure what it is, don't worry, you're certainly not alone.

Finder data shows that 40% of Australians have little or no understanding of what superannuation is and how it works. Less than one-quarter of us say we understand it perfectly.

What is superannuation?

Your superannuation 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 without needing government assistance.

Superannuation is Australia's system for retirement savings, similar to America's 401(k) or the UK pension system.

The superannuation guarantee explained

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 10% of what you earn annually.

This means that your employer must pay at least 10% 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.

Example of the super guarantee

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 $90,000. With a super guarantee rate of 10%, your employer would legally be required to pay you at least $9,000 into your super fund for the year. If the following year you got a pay rise and your salary increased to $97,000, your employer would then be required to pay you $9,700 for that year.

How the super guarantee is paid

Your employer is required to pay your super at least 4 times per year. Let's say you earn $90,000 and your employer needs to pay you $9,000 in super for the year. This would be broken down into 4 payments of $2,250 instead of the one lump sum payment. Basically, the super guarantee rate of 10% would be applied to your quarterly earnings of $22,500.

There are a few situations where employees are not legally required to pay superannuation, including:

  • 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

Superannuation if you're self-employed

If you're self-employed, you're not legally required to pay yourself the super guarantee. However, it's definitely a good idea to pay yourself regular super contributions to ensure you have enough retirement savings. You can make contributions into your super fund just like a standard bank transfer.

How your super is invested

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. 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.

Video: What is superannuation?

Australian super funds

Name Product Last 1 year performance (p.a.) Last 3 year performance (p.a.) Last 5 year performance (p.a.) Last 10 year performance (p.a.) Fees on $50k balance (p.a.)

Virgin Money Super - LifeStage Tracker

Virgin Money Super - LifeStage Tracker
+22.17%
+10.04%
New Fund
New Fund
$363
Virgin Money Super LifeStage Tracker has one of the lowest fees in the market and has strong 3 year performance. It invests in a mix of assets in line with your age, reducing your risk as you near retirement. The investment team was named a Responsible Investment Leader 2020 and 2021 by the Responsible Investment Association Australasia.

Australian Ethical Super Balanced

Green Company
Australian Ethical Super Balanced
+17.96%
+10.33%
+9.67%
+9.01%
$622
Certified by the Responsible Investment Association Australasia.
Australian Ethical seeks to invest in companies that have a positive impact on the planet, people and animals, such as renewable energy and healthcare while avoiding investments in coal, oil, tobacco and gambling.

AustralianSuper - Pre-mixed, Balanced option

Finder Award
AustralianSuper - Pre-mixed, Balanced option
+20.46%
+9.6%
+10.46%
+9.74%
$476
AustralianSuper is an award-winning industry super fund and the largest super fund in Australia. The Balanced fund invests in a mix of different assets like shares, property and cash.

Sunsuper Lifecycle Balanced

Finder Award
Sunsuper Lifecycle Balanced
+20.62%
+8.77%
+9.84%
+9.06%
$558
Sunsuper is an award-winning super fund with more than 1.4 million members. Its Lifecycle Balanced option invests your super in a mix of growth assets, and reduces your risk when you're near retirement.

Spaceship GrowthX

Spaceship GrowthX
+23.41%
+15.25%
New Fund
New Fund
$536
This is a high-risk investment option that aims to deliver high returns over the long term.
Spaceship's GrowthX fund invests heavily in technology ETFs with high exposures to Australian and international shares. Performance figures and fees supplied by Spaceship, not Chant West.

QSuper Lifetime - Aspire 1

QSuper Lifetime - Aspire 1
+17.11%
+9.02%
+8.61%
New Fund
$360
QSuper is one of the largest profit-for-members funds in Australia. QSuper Lifetime continually adjusts your investment mix in line with your age and your super account balance.

Aware Super Growth

Aware Super Growth
+18.02%
+8.81%
+9.8%
+8.97%
$519
Aware Super is a not-for-profit fund with more than 750,000 members. The MySuper product invests your super in a pre-mixed Growth fund until you’re 60, then it’ll switch to Balanced.

HESTA Balanced Growth

HESTA Balanced Growth
+19.03%
+8.48%
+9.39%
+8.87%
$533
HESTA is an industry super fund for the health and community services sector and open to all Australians. The Balanced Growth fund invests in a mix of asset classes without taking on too much, or too little, risk.

Australian Catholic Super Lifetime - Grow

Australian Catholic Super Lifetime - Grow
+17.36%
+7.42%
New Fund
New Fund
$528
A Catholic super fund open to all Australians and designed for people working in Catholic education, healthcare or aged care.The Lifetime One fund option changes your investment mix as you get older.

Verve Super Balanced

Verve Super Balanced
+12.85%
New Fund
New Fund
New Fund
$691
Verve Super is an ethical super fund tailored for women. It seeks to invest in companies making a positive impact, such as renewable energy and women in leadership, while avoiding those that cause harm, such as fossil fuels, tobacco and guns.

Superhero Super Autopilot

Superhero Super Autopilot
+14.52%
+8.39%
New Fund
New Fund
$429
Superhero Super Autopilot allows you to invest up to 30% of your super in different themed ASX shares and ETFs, with at least 70% of your balance invested in the Vanguard Global Diversified Index Portfolio. Performance and fees are based on having 100% of your balance in the index portfolio.

REST Super - Core Strategy

REST Super - Core Strategy
+17.43%
+7.17%
+8.26%
+8.43%
$467
REST is an industry super fund tailored towards the retail sector and open to all Australians with almost 2 million members. The Core Strategy is a diversified investment portfolio that balances risk and return.

AustralianSuper - Socially Aware

AustralianSuper - Socially Aware
+19.4%
+7.89%
+9.25%
+9.2%
$501
The AustralianSuper Socially Aware option doesn't invest in Australian or international companies that directly own coal and fossil fuel reserves, produce tobacco or those which have single-gender boards. Investment performance as of 30 June 2020.

Aware Super - Diversified Socially Responsible Investment

Aware Super - Diversified Socially Responsible Investment
+15.23%
+8.1%
+8.28%
+8.12%
$406
The Aware Super Diversified Socially Responsible Investment is a pre-mixed investment option that excludes companies operating in the tobacco, ammunition, gambling, alcohol, forest logging and pornography industries, as well as companies that attribute 20% or more of their revenue to coal, oil and gas.

Sunsuper - Socially Conscious Balanced

Sunsuper - Socially Conscious Balanced
+19.6%
+8.76%
+8.83%
+8.25%
$463
Certified by the Responsible Investment Association Australasia.
The Sunsuper Socially Conscious Balanced option avoids investment in companies that have significant exposure (more than 5% of revenue) to alcohol, tobacco, gambling, pornography, coal and nuclear power manufacturing. Investment performance as of 30 June 2020.

HESTA - Sustainable Growth

HESTA - Sustainable Growth
+23.03%
+11.93%
+11.78%
+11.28%
$780
HESTA Sustainable Growth is a pre-mixed, diversified investment option with a high to very high risk level. The investment managers take into account the social and environmental impact of the companies in which it invests, and excludes investment in tobacco, fossil fuels, uranium and weapon manufacturing. Investment performance as of 30 June 2020.
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Compare up to 4 providers

The information in the table is based on data provided by Chant West Pty Ltd (AFSL 255320) which is itself supplied by third parties. While such information is believed to be accurate, Chant West does not accept responsibility for any inaccuracy in such information. Chant West’s Financial Services Guide is available at https://www.chantwest.com.au/financial-services-guide . Finder offers no guarantees or warranties about the data and we recommend that users make their own enquiries before relying on this information. Performance, fees and insurance data is based on each fund's default MySuper product. Where the performance, fees and insurance data for the MySuper fund vary according to the member's age, results for individuals between 40-49 years of age have been shown. Past performance is not a reliable indicator of future performance.

Why superannuation is so important

Without superannuation, you'll need to rely on your personal savings and investments when you retire, which may not be enough money to live on. We won't all be able to access the aged pension, so you need to make sure your super is enough to retire.

How much superannuation will I have?

Because the super guarantee is paid as a percentage of your annual earnings, everyone will retire with different amounts of super. According to the ASFA, men are retiring with around $154,453 in super and women are retiring with around $122,848. This may seem like a lot, but it's far below the target for a comfortable retirement, which is set at $545,000.

A number of factors will impact how much super you have, including the following:

  • The super fund you're with (some funds deliver much better investment returns than others, which it's why it's important to compare super funds)
  • Whether you make extra contributions
  • How much money you earn
  • Whether you take extended time out of the workforce (for example to raise children)
  • The industry you work in (some jobs, such as government jobs, pay employees a higher amount of super than what's required with the super guarantee)
  • If you have multiple super funds (having multiple funds means you'll lose more money to fees, so you should consolidate funds to avoid this)

When can you access your super?

When you're retired, you can start withdrawing the money from your super fund. However, you can't simply retire at age 35 and gain access to your super. You also need to meet a minimum age requirement. For anyone born after 1964, the minimum age you can access your super is 60.

There are some situations where you can gain early access to your super; however, these are mostly in extreme circumstances.

How to get your super on track

Now that you've got a better understanding of what superannuation is and how it works, here's how to boost your balance.

  • Compare. Compare super funds and look for one with low fees and high long-term returns (if you need some help with this, here are some of our best super fund picks).
  • Consolidate. Check how many funds you have in your name (you can do this in your myGov account online). If you've got more than one, consolidate them.
  • Contribute. Make sure your employer is paying you the right amount of super, and consider adding your own contributions to boost your balance even more.
  • Check. You don't need to check your super every day, but it's a good idea to check at least once or twice a year to see how it's performing against other funds.

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