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Superannuation

Do you know much about about how your superannuation works? Oiyo's got your back. Find out more about super and discover how you could get it working better for you.

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How Does Super Work? A Quick Guide to Superannuation

How Does Super Work? A Quick Guide to Superannuation

There’s a lot to unpack when it comes to superannuation – it’s far more than just tucking away a few pennies each month for one day when retirement finally creeps around. You work hard for your money – make sure you understand how your super works so you can make it work for you.

Let’s start by getting to grips with what superannuation is. Consider superannuation as a type of saving for retirement, mandated by the government.

A percentage of your income is paid to your superannuation account by your employer. Your super is considered an investment fund that eases the financial process of retirement. With several types of super accounts available from an array of different super funds, it’s important to understand how yours works. Apart from understanding how super works, it’s also important to learn how to compare supers. Let’s talk about your retirement money.

What is Superannuation?

According to the Australian Taxation Office (ATO), your superannuation is an investment account that contains funds contributed by your employer. Those funds accumulate throughout your working life, until you retire. So, fair to say your superannuation is pretty important.

After retirement, your super fund will help cover your cost of living. The more you save throughout your working life, the more money you’ll have when you retire. Your funds are secured in that account and can only be withdrawn under special circumstances. Otherwise, the funds can be withdrawn when you turn 65 years old or whenever you choose to retire.

What’s the process in Australia?

Typically, your employer will pay your super funds into your designated account so you won’t have to worry about fortnightly contributions. Your employer must contribute a minimum of 9.5% of your ordinary earnings to your super fund. This requirement was introduced in July 2014 to help gradually grow funds. Your ordinary time earnings are your income during regular working hours. This means your overtime is not included in super contributions.

A fund manager will then invest in the money and help grow your super fund. The majority of super funds offer several investment options. Depending on what fund you choose, your returns will likely vary. Comparing different super funds is a vital aspect to keep in mind. While superannuation may seem complicated, it’s really a simple process that requires minimal effort.

Employers contribute a minimum of 9.5% to super funds, and funds are left to grow until retirement. All you need to do is pick the right fund for you – easy, right? Not quite. Let’s figure this out.

But First: Superannuation Eligibility

Generally, all funds in superannuation accounts are contributed by employers. The money paid to your superannuation by your employer is considered a ‘contribution’. This process is also referred to as the ‘super guarantee’. Those contributions are still paid on top of yearly salaries. However, there are certain laws regarding how much your employer must contribute. Apart from the minimum 9.5% contribution, your employer must contribute to your super if you are:

  • 18 years or older, and receive gross pay of $450 or more monthly.
  • Under 18 years old, and receive gross pay of $450 or more monthly, and work 30 hours or more weekly.

These requirements apply to all employment contracts (casual, part-time, full-time). Even as a contractor paid for labour with an Australian business number (ABN), you may still be eligible.

Is having a super fund a requirement?

As an employee in Australia who meets the eligibility requirements, your employer must contribute to your super, by law. Regardless of your employment contract, you’re entitled to a super as long as you’re an Australian citizen or permanent resident. You’ll notice all organisations will ask for your super details upon starting a new job. While organisations must ask if you want to join their default super, you have the option to accept or reject, instead nominating your preferred fund.

How to compare super funds

With the above factors in mind, you may be wondering how you can go about comparing different super funds. It’s pretty simple! You can either compare funds through the product disclosure statement (PDS) for every fund, or more popularly, use comparison websites.

There are several comparison websites that can help you find the right super fund. Consider checking out:

  • Canstar
  • RateCity
  • SuperRatings
  • SelectingSuper

Most comparison websites are completely free. However, some may provide additional detailed information for a small fee. They may give you a rough idea of what different funds offer, but it’s important to look out for specific factors.

What to look out for

You have the right to choose your own super fund. Whilst many super funds will welcome changes later in life and you can combine or merge funds if needed, a few extra minutes of research could help you understand how to compare super funds and how different features can affect you and, most importantly, your money.

When comparing super funds, you should mainly focus on comparing their fees, investment options, reviews, etc.

If you’re choosing your own super fund and not going with the one your employer prefers, it’s important to compare performance, fees, returns, and insurance when looking for a super fund. Here are a few things to consider:

Performance

It’s important to consider your fund’s investment performance over five years. A fund’s investment performance is a vital factor to look into as it may heavily impact fees and taxes. It’s as simple as comparing a balanced option with another, while considering the same timeframe. To do this, go straight to source – most providers will offer reports on their website with performance details.

Fees

Every super fund charges fees. It’s important to compare different super funds to find one with low fees. Fees could either be a dollar amount or percentage, so keep an eye out for that! Fees get deducted every month or when switching investments. Therefore, it’s important to find low fees. The lower your fees, the more money goes into your investment.

Insurance

There are three types of insurance for superannuation members. They include:

When you compare insurance offered by several super funds, it’s important to look out for:

  • The rates
  • Coverage amount
  • Exclusions that may affect you

Investment

When comparing super funds, you’ll notice the majority will give you the ability to choose from several investment options. Here are the investment options that are usually available to compare:

  • Growth
  • Balanced
  • Cash
  • Ethical
  • MySuper
  • Conservative

Some funds may also allow you to choose how you want different asset types weighed. This also includes direct investments!

Superannuation services

When comparing super funds, you’ll notice some offering additional services with special fees. Such services may include financial advice or the ability to divide your super. As a result, superannuation services may be another factor worth considering when comparing funds.

 
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.

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