5 Things Everyone Should Know About Super
Superannuation is the way in which Australians save for their retirement. Nearly every working Australian will have Superannuation Guarantee contributions paid by their employer directly to their superannuation account. This is your money paid into an account especially for you. Just because your retirement may be years away, it’s important not to neglect your Super. Don’t believe it? Read on.
- It’s never too early to start paying attention
Australians will typically receive compulsory contributions to their Super fund for more than 40 years. The opportunity to maximise the amount you have available to fund your retirement starts with the very first contribution made to your fund.
Your final balance at retirement doesn’t just depend on the amount of your contributions but is affected by investment returns, fees and the compounding effect of long-term savings. A little bit of love can make a whole BIG difference!
- The Power of Compounding!
In spite of being “one of the most powerful forces of the universe”, compounding is straightforward. It simply occurs when interest earned subsequently earns interest on itself. This is especially important in Superannuation because of the decades you’re likely to hold your balance. Using a simple example and ignoring fees and taxes, $1 deposited for 40 years earning an annual return of 5% will become $7 – that first dollar you deposited earns $6! So the contributions early in your career can be the most valuable to your retirement, which brings us to . . .
- There’s more than one type of Contribution
Employer Contributions are the compulsory amounts your employer must pay on behalf of employees over 18 earning $450 or more in a month. Employer contributions are currently at 9.5% of your salary and will increase to 12% by 2025. However, you’re not limited to compulsory contributions.
You may agree with your employer to make additional contributions by sacrificing some of your salary directly to Super as Pre-Tax Contributions. After-tax Contributions are another simple option to accelerate your balance and can trigger a Government Co-contribution if you earn less than the threshold (currently $51,000). Whilst people earning less than $37,000 may be eligible for another Government contribution.
It’s worth understanding if any of these options apply to you so speak to your Super Fund or consider speaking to a Financial Advisor.
- Super can be tax efficient
Pre-tax salary sacrifice and compulsory employer contributions are taxed at 15% when paid into super. If you’re earning more than $37,000 per year the 15% paid on Super is below what you’re paying on your income (your marginal tax rate). This means the slice of the excess over 15% that would otherwise go to the tax office ends up in your Super account and will earn interest or an investment return. With the added effect of compounding this is a great way to boost your balance for retirement.
- Insurance in Super
Typically, Super funds offer three types of insurance:
- Death cover, aka life insurance paid to your beneficiaries when you die
- Total and permanent disability cover (TPD) if you become seriously disabled and are unlikely to work again
- Income protection cover (IP) if you temporarily can’t work due to illness
Many Super accounts offer a standard or minimum level of life insurance which you can change or cancel. There are several possible advantages purchasing insurance through your Super fund can provide including bulk-buying power and automatic coverage when you start a new job.
However, like any financial product, it is important to compare the terms offered through your fund to other products available. In addition to cost, key elements to consider include:
- The amount of cover and the nature of benefits provided for each of the types of risk covered including initial qualifying periods and limits on the duration of cover
- Special conditions, especially around existing conditions and the return to work qualifications for TPD and IP
- The claims history of your provider, including how long they take to pay and how often they refuse claims
It is particularly important to consider your Insurance when you change or consolidate funds. Any cover you have under existing funds is usually lost when you cancel a Super account and therefore it is important to fully understand the conditions of both your existing and new policies. Your funds’ Product Disclosure Statement is usually available on their website or speak to a Financial Advisor.
This information is part of a series financial education insights provided to Employment Hero users. In future installments we’ll be outlining the typical Investment Options available through most Superannuation Funds and how these affect your superannuation balance. If you’d like assistance sooner, please contact a Financial Advisor.
1) Today most Australians have Defined Contributions funds, meaning their contributions are paid into an account just for them. Defined Benefit and other employer sponsored schemes operate differently. If you don’t know what kind of fund you have speak to your employer, your super fund or a Financial Advisor.
Important Notice & Disclaimer: this information is provided by Employment Hero Pty Ltd (“EH”) (ABN 11 160 047 709) and all financial information contained is provided Employment Hero Financial Services Pty Ltd (“EHFS”) (ABN 28 606 879 663, AFSRN 001234046). EHFS is an authorised representative of Ballast Financial Management Pty Ltd (ABN 41 086 601 041, AFSL License 233 180). Information in this email may be regarded as general advice. That is, your personal objectives, needs or financial situation were not taken into account in preparing this information and therefore it may not be complete or appropriate for your circumstances. Before acting on any advice in this email you should assess or seek advice on whether it is appropriate for your objectives, needs and financial situation. A Product Disclosure Statement (PDS) or other disclosure document may be available for products and services described in this email. You should obtain and consider the disclosure document relating to a product or service you are interested in before making any decision about whether to acquire or continue to hold the product or service. A copy of the PDS can be obtained from the fund or product provider’s website or by contacting a Financial Advisor. Information is based on data supplied by third parties. While such data is believed to be accurate, EH or EHFS does not accept responsibility for any inaccuracy in such data.