Superannuation basics

FINANCIAL LITERACY

You will most likely know the word ‘superannuation’. It is used a lot in conversation, including in the media, but do you really understand what it means for you?

Superannuation is effectively a retirement plan for all Australians. It was introduced in 1992 and has been evolving ever since.

It is designed so that more Australians are financially independent when they retire. You might not be thinking about retirement if you are aged under 30, but it is wise to take time now to learn about superannuation so you can set yourself up financially for later in life. However, if you are approaching retirement, it is imperative to know what your superannuation options are.

On the surface superannuation might seem simple, but underneath the regulation is highly complex. That is why there are no stupid questions when it comes to superannuation. This blog aims to summarise the basic information you should know about superannuation including how to select a find and open an account.

What are the superannuation basics?

You earn superannuation through your employment. It is mandatory for Australian employers to pay their employees superannuation. Superannuation is paid to employees whether they are casual, part time or full time. This forms the basis of your superannuation earnings. You also have the option to make your own voluntary contributions to boost your superannuation account.

How much superannuation should my employer pay me?

The current superannuation guarantee contribution (SGC) percentage that an employer must pay an employee is 10.5%, see Table with Super guarantee percentages.

This is due to change as will superannuation legislation over time. This is why it is a good idea to read a little about it from time to time and to have a ‘financial planning’ professional on your team, noting that many super funds offer free seminars.

Employers’ superannuation obligations

Paying superannuation promptly builds trust with employees and avoids penalties.

Did you know employers are penalised for not paying superannuation on time?

Why do I need a superannuation account and how do I choose one?

Employees must have an account with a superannuation fund. If you don’t, then your employer will need to place your superannuation in what is called an employer default superannuation fund and that amount can then be transferred to your own superannuation account when you open it.

There are about 500 superannuation funds in Australia. They all want your business. Some have conditions for joining. For example, some funds restrict their membership to employees from certain industries.

Why not talk with relatives and friends about which super fund they are with, and how and why they joined their fund. You may also know a financial planner you can have a chat with. Speaking with a qualified advisor is an investment and is recommended for anyone who can afford it. Here is one website that you might find useful; https://moneysmart.gov.au/how-super-works/choosing-a-super-fund.

Applying for a superannuation account

Applying for a superannuation account involves the following steps:

  1. Choose a superannuation fund: Research and choose a superannuation fund that suits your needs. Funds have different fees and investment offerings.
  2. Gather your personal details: You will need to provide your personal details such as your name, date of birth, address, tax file number (TFN) and contact information. You will need the relevant identification documents on hand, such as your driver’s licence.
  3. Complete an application form: Once you have selected a superannuation fund, you will need to complete the application form. You can usually do this online or by downloading a paper form.
  4. Choose your investment options: You can choose your investment options based on your risk appetite and financial goals. Most superannuation funds offer a range of investment options such as growth, balanced or conservative.

When you apply to open a superannuation account, this generally happens online but you can also phone most funds.

Just getting your superannuation account set up with the basics is priority. You can change many of the details, such as investment mix and insurance details, once your account is open.

Once you have completed the application process, your superannuation fund will send you a welcome letter with your account details. With your welcome letter, you will receive instructions on how to create an online account. An online account will give you easy access to your own superannuation details. It is important to keep your superannuation account details secure. See our EDGE SME cybersecurity blog 16/01/2023.

It is wise to monitor your superannuation account, including checking the annual statement you will receive from your superannuation fund.

There will be further blogs on superannuation as it is complex and ever changing.

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