Superpowers of Superannuation

By Samantha Lai

The Power of Super

To give you an idea of the power of super, the graphic below steps through the basics of the life of a Superannuation contribution. Keep in mind for simplicity we’ve ignored tax and used a 5% annual return over 45 years in the example.

The Superannuation flowchart — Where Super goes and where it comes from

Don’t worry if none of that makes sense yet – we promise it’ll be cleared up in this article!

What is Super?

Superannuation, or Super, is essentially money you set aside for your retirement. In its simplest form, the Superannuation Guarantee (explored below) is extra money, AKA contributions, your employer legally has to pay into your super account to fund your senior years.

Super has only been around since 1992, and Australia is one of the only countries in the world to have a compulsory retirement-income system. Its aim is to ensure every Australian worker has a pool of money to rely on when they retire– and it seems to be working, with our pension system ranked third best in the world!^[1]

How do I get Super Contributions?

Splitting Super contributions — Where your Super comes from

For most students, the main form of your super contributions will be those that your employer legally must make, under the Superannuation Guarantee (SG). The SG is currently 9.5% of your salary, but this rate is legislated to increase in the coming years.

To receive the SG, you must be:

18 years old or over, and are paid $450 or more (before tax) in a calendar month, OR
under 18 years old, being paid $450 or more (before tax) in a calendar month and work more than 30 hours in a week.

This applies regardless of the type of work you do (e.g. casual), and even if you’re a temporary resident.^[2]

You can also make Voluntary Contributions (VCs) to your super whenever you want to – it’s like depositing money into your savings account, but in most cases, you can’t touch it until you reach retirement age.

So why would you make a voluntary contribution when retirement is so far away?

It’s always good to plan ahead, but there are also a number of incentives from the government for low-income earners to make VCs. In some cases, they will co-contribute (e.g. add in extra money on top of your VC), or waive the tax on your super contribution.

Where do these contributions go?

All employers have a default super fund, but many will also allow you to nominate your own choice of fund.

These super funds employ investment managers, who work to grow member’s (your!) balances through investment strategies. The returns on your super balance are reinvested, and through the power of compound interest, the $100 contribution in our earlier example can grow to $900 by the time you retire.

By choosing a super fund product, you can influence the rate of return (how much your money will grow over your lifetime) of your super balance.

There are a number of super fund categories, but the most accessible for students are industry and retail funds.

Industry
- Industry funds are not-for-profit, so any profits are returned to members
- The big industry funds are open to anyone (public offer), but some smaller funds may only accept employees from that industry.
- Largest industry funds (funds with the most assets under management as at 30 June 2019)^[3]
  - Public offer
    - Australian Super, Sunsuper, Retail Employees Superannuation Trust (REST)
  - Non-public offer
    - Unisuper
Retail
- Generally provide a wider range of investment options, providing greater control over where your money goes.
- For-profit, aiming to return profits to owners/shareholders
- Largest retail funds (funds with the most assets under management as at 30 June 2019)³
  - MLC, Colonial First State, BT Retirement Wrap

How do I pick a Super Fund?

There are a number of well-regarded comparison websites that provide information on the super funds you can pick from.

It’s important to consider the fund’s performance over the medium to long term (5-10 years), fees that they’ll charge you, their range of investment options, and if you want to use any of the additional features, such as insurance.

Most super funds give investment options – typically these include a growth, balanced and conservative option, but some also offer more niche options. These different products allow members to choose a mix that aligns with their risk appetite, how long until their retirement, and other personal factors.

If this is all getting complicated, the Government ensured that the default product at any super fund, called My Super is simple and low-fee, and this is generally a “safe” option. APRA, the superannuation regulator released a report last year comparing My Super products from all super funds, and highlighted under-performers – you can find the list here.

Common Superannuation Issues

Having multiple super accounts

A common problem for students is having multiple active super accounts. Whenever you start a new job, if you don’t tell your employer which super fund you are already with, they will open a new account for you. This is a problem, because not only is it hard to keep track, but you are then paying fees multiple times.

Consolidating your super accounts means less fees in the long-run.

It’s easy to consolidate your super – it can be done through the ATO or through your preferred super fund.

With the ATO, login, head to the Super -> Transfer Super section, and you can consolidate your balances.
Contact your fund – most have a form you can fill out, and they will search for any other accounts in your name for you.

Paying for insurance you don’t want or need

Most super funds offer add-on insurance, such as income protection or life insurance. While it can be a great way to access these services, in the past this insurance has been opt-out. This means if you have existing superannuation accounts, you may not have realised that you have been paying for insurance you didn’t actually want.

To tackle this, from 1 April 2020, any new accounts created by those younger than 25, or existing accounts with balances under $6,000 do not have default insurance attached. If you fall outside of these brackets but don’t want insurance, you can check with your fund if you have insurance, and request to cancel it.

Changes to insurance coverage within Super, in 2020

Conclusion

Super can be complicated and there’s plenty of complex aspects that we haven’t covered. This article should give you a great starting point, but if you’re interested in finding out more, here are some useful links: