Superannuation is a relatively unique system in Australia which involves extra payments from employers to their employees for the purpose of building a long-term saving fund. If you are an Australian citizen just setting foot into the workforce, you’ll need a basic understanding of superannuation so that you are aware of where a portion of your pay goes and how it may affect your financial future.
Keep reading to find out more about the concept of superannuation so that you are adequately prepared when entering the workforce.
What is Superannuation?
Superannuation is an amount of money paid by your employer to your designated super fund and acts as a compulsory retirement fund and long-term investment. It is currently 9.5% of an employee’s ordinary time pay, however is set to rise to 10% in July 2021 (with forecasted 0.5% increment increases by 2025). Due to its purpose as a retirement fund, individuals can typically only access their super funds once they have reached a ‘preservation age’. This age is currently 60 years for Australian citizens born after the 30th of June 1964.
Superannuation is also not a stranger to taxes. Your super is taxed at three separate stages – on the way into your fund (when your employer deposits it into your super fund account), when inside your fund (on the earnings you made from your super investments), and in some cases, on the way outside of your fund (although this does not usually happen when accessing your super funds after 60 years of age or under compassionate grounds).
The Different Types of Super Funds
There are different types of funds that you can accumulate and store your super in. Differentiating between these different types of super funds will help you better manage your super contributions and work out which ones would be best suited for your financial goals and circumstances.
1. Accumulation funds
An accumulation fund is designed to grow your money while in the fund. The value of your super while in an accumulation fund is dependent on the amount both you and your employer deposits into it. Your money in an accumulation fund is also generally used to invest in relevant asset classes.
2. Defined benefit funds
Rather than being based on investment return, your retirement benefit in a defined benefit fund is determined by a formula. Rather exclusive in nature, the majority of defined benefit funds are corporate or public sector funds. Your super benefit in a defined benefit fund is calculated by taking into account the money both you and your employer put into your account, your average salary over your last few working years before retirement, and the length of your employment.
When can you access your superannuation?
As mentioned previously, superannuation is accessible to most Australians once they reach the age of 60 or ‘preservation age’. However, due to the fact that superannuation also acts as an emergency fund, there are some cases in which individuals can withdraw from their superannuation funds early.
Individuals are usually permitted to withdraw from their superannuation funds early on compassionate grounds – for example, if they are in serious financial hardship due to COVID-19. However, it is worth noting that early withdrawals from super can affect your income protection insurance as well as your life and total permanent disability insurance cover.
Looking to learn more about superannuation? Talk to the professionals over at Access Super Audit for expert advice and information!
About The Author
Jim Pullman
Jim Pulman has extensive knowledge and experience in Home Building, Construction, and Design. He writes articles in his free time and partners with content creators to share his expertise with the online community. He is also passionate about automobiles.
