When we lack awareness and information, we can unfortunately make some pretty uninformed decisions about our super. For a lot of Aussies, superannuation is likely to be their largest financial asset, and even their only investment asset. So why don’t Aussies seem to care about their super?
Let’s face it, everyone thinks differently when it comes to money. However, it’s important to understand the benefits that your superannuation can bring to your future. Research shows that many young Aussies underestimate how much money they will need for their retirement. At Oiyo, we believe this is something that should change. Believe it or not, super is actually really simple. So, let’s unpack why your super matters and how you could maximise your super savings!
Confused about super? You’re not alone
Research by the Association of Superannuation Funds of Australia (ASFA) has found that Australians under the age of 30 tend to have more money in their superannuation accounts than their current bank balances.
Not only that, in 2017, ASFA also found that more than 60% of young people have multiple super accounts. Despite online access available through MyGov, 30% have trouble finding their past accounts. Although this may not seem like a big deal, it is. Having multiple super accounts can cost you because you’re actually paying multiple fees and insurance premiums.
According to research by Metlife, superfund members are unaware that most super funds already offer built-in insurance, which is essentially a premium. This means that fewer Australian’s are aware they have access to Death, Total Permanent Disablement (TPD) and Income Protection (IP) cover through their super fund. More than one in four people said they were not aware they were being charged a premium for insurance inside their super. For the people that were aware, only 34% of them knew the premium amount they were being charged.
These figures are pretty damning. To ensure younger generations are aware of the benefits available to them, more needs to be done. It’s vital for young people to be thinking about the cover they need and modifying their policies.
Fast facts: Young Aussies + Super
- More than 60% of young people have multiple super accounts.
- 30% have trouble finding their past accounts.
- More than one in four people are not aware they are being charged a premium for insurance inside their super.
- For those that are aware, only 34% know how much they are being charged.
Let’s talk super
Superannuation has a reputation for being complicated. However, it’s simply a way of saving for retirement. Super in Australia has been around since 1991. This compulsory scheme requires employers to pay a set portion of their employee’s salaries into a super fund, known as guarantee contributions. Currently, the superannuation guarantee’s rate is 9.5%.
To help provide a realistic income in retirement, the super guarantee rate will continue to increase to 12% by 2025. This means that Australian’s will accumulate more superannuation over their working lives, increasing the likelihood of a comfortable retirement. On top of these compulsory contributions, you can also choose to make personal contributions. This is a great way to boost your retirement savings and also reduce your tax.
We know how easy it is to forget about your super, but it really is worth paying attention to, so you can achieve the best possible retirement outcome. The earlier you start looking after your super, the better off you’ll be in the long run. If you haven’t begun your super journey, not to worry! It’s never too late to start boosting your super savings.
Growing your superannuation
Did you know that depending on life expectancy and the cost of living, your super may need to last 20-40 years? If you are over 18 years of age and earn over $450 per month, your employer will pay 9.5% of your pay into your super. However, contributing small amounts each week or month could make a huge difference to your super balance. This is known as voluntary after-tax super contributions, non-concessional or personal contributions. Essentially, this is money you choose to pay into your super fund from your after-tax income or savings.
So let’s talk about how this can benefit you. Your personal contributions, together with the power of compounding returns, could allow your super to accelerate at a much faster rate. Compound interest is the interest calculated from an initial sum of money. This money is then added to the total which increases each time that interest payment is paid out. Therefore, if you add more savings to your super, more interest will be added each and every month.
If this sounds like something you want to learn more about, check out the SuperGuide.
Choosing the right super
Looking after your super is simple. All you need to do is compare different super funds online, choose a fund with lower fees and combine all your super into one account.
When comparing different super funds, you should consider the cover they give you, fees, investment options, performance and service. It’s also important to look at how your super fund is performing every 12 months or so, and reassess if it’s working for you.
In recent years, super firms such as Grow, Zuper and Spaceship have made efforts to improve the clarity of information they provide. It’s always important to have effective communication between you and your super fund. Modern super firms are now focusing on explaining what investment options are available. They explain how to consolidate accounts, as well as how to consolidate cover. By choosing the right super fund, you can become confident in your choices to accelerate towards financial freedom.
How does the aging population affect your super?
As Paul Keating noted in his opening address at the 50th Anniversary ASFA Conference in 2012, the superannuation system was built for the 55-75 age group. However, a lot of people are now living into their late 80’s. This means their hard-earned savings won’t provide them with a reliable income for their increasingly long lives.
While Australia’s aging population is not facing as much pressure as Japan or some European countries, we are still at the mercy of an increasing rate of old-age dependency.
The reality is, most Australians are still not on track towards securing a comfortable income before they reach retirement. As a consequence, this will continue to draw a large part of retirement income from the age pension. The aging population will affect various aspects of daily life, which will cause imbalances in pensions, health, aged care, and much more.
Australia’s aged dependency ratio (the number of people over 65 to the working-age population) is steadily increasing. This ratio indicates more retirees for each worker. As a result of this, there is an increasing fiscal burden on the current working-age population.
While we may not realise it now, we cannot ignore the fact that as health and aged care costs continue to increase, this will affect the superannuation system and cause greater pressure for younger generations to fund their own expenses.
According to the Parliament of Australia, the superannuation system is expected to increase the total level of benefits paid as fund members retire. At some stage in the 2020s, these outflows will be larger than the level of contributions.
Your super matters!
At the end of the day, it’s up to us to come face to face with these issues and take charge of our future financial prosperity. Every little bit you can put away for your super will help you save for retirement. As we’ve said, we believe the earlier you start getting on top of your super, the better off you’ll be in the long run. So brush up on the basics, choose the right fund for you and take advantage of your super, so you can live a comfortable retirement.
Learn more about super
Check out some of our other helpful guides and articles on superannuation.Learn More
Oiyo is a consolidated online resource, we are not financial advisors. We work with a range of industry professionals and compliance check our articles to ensure factual accuracy. However, we do not provide professional financial advice. Consider seeking independent legal, financial, taxation or other advice to check how the information and ideas presented in this article relate to your unique circumstances.