Superannuation

Yawn. (kidding.. kind of)

It is important, our super. We aren’t taught about it in school, and even when we enter into the work force, it really isn’t explained. If we never learn to take an interest in it, we could really be sacrificing a comfortable retirement. So while it isn’t the most exciting topic, it is an important one, and I would encourage you to read on. The main points I want to get across is that you know what company you are with, what type of fund you are in, and how the fund is performing. It is also important to make sure your employer is paying you the right amount of super, and it is also worth considering making additional contributions. If there is something that you don’t know in that list of things, hopefully this post will give you the tools to find out.

Superannuation

Superannuation is the retirement scheme here in Australia. Our employers are obligated to pay their employees superannuation, and people can also pay into their own super as well. This cannot be accessed until preservation age, which currently is set at 60.

You are eligible to receive super contributions from your employer if you earn $450 or more in a month and are aged 18+. It doesn’t matter how you are employed- part time, full time, or casual, you are entitled to super payments from your employer. If you are under the age of 18, you must be working more than 30 hours a week to earn super.

The “super guarantee” is the minimum payment your employer must pay into your superannuation. Up to June 30 2021, this super guarantee was 9.5%. As of July 1 2021, that guarantee is now 10% and will be increasing to 12% over the next few years.

How Can You Check Your Super?

To see how much super your employer is paying, it should be on your payslip, otherwise you can access it via your myGov account or through your super account. If you aren’t getting the right amount, talk to your employer. If your employer isn’t paying you super- that’s actually illegal and it’s important you report them to the ATO. If you don’t know who your super is with or how much you have in there- you’ll want to find out.

If you don’t know who you are with, and can’t find any paperwork, I would go back to your first employer and find out who they set you up with. Or go onto my.gov.au and head to the Australian Taxation Office section and you will be able to find your fund details there. If you still don’t have a myGov account set up, I would encourage you to do so as this is where you will find information on your tax, super, Medicare & your covid-19 vaccination records!

What Fund Should You Be In?

It is important you are in a fund that is right for you. If you are still with the default company you were signed up with when you got your first job and have never looked at it since, it is probably worth going back and seeing if it is right for you.

Things to consider when picking a superannuation fund include:

  • The job/industry we work in
  • Investment options
  • Fees
  • Features
  • Performance

At the end of the day, the super fund that you choose should work for you, it isn’t up to anyone else. What you value and prioritise will be what you look for in a super fund. Whether that is finding an ethical fund, a fund with low costs, or one that has consistently performed well over a long time, the choice is yours!

Another thing to consider is the investment style you are in within that fund. Super funds will have a few different portfolio options you can choose from, generally ranging from cash/defensive, to balanced, to high growth options. Again, the portfolio you choose should be personalised to you and your risk profile.

A general rule of thumb is that the further away you are from retirement, the more risk you can take on. So when you are at the start of your working life, you can afford to take more risks as you have time to ride out volatility and bounce back from any losses. As you get older your risk should be decreasing as you will need that money sooner and don’t have as long to recoup. While this is a general rule, it will need to come down to how you feel about risk. If you can’t sleep at night knowing you are in a high risk/growth option despite being in your early twenties, then this is probably not the right option for you. On the other hand, if you are comfortable taking on risk and think it is worth the return when you are in your fifties, a high growth option may still be for you.

Extra Contributions

If you have some extra money left over and want to invest for your future, it may be a great idea to pay extra contributions into super! There are a couple of different ways you can do this, either pre-tax or post-tax.

Pre-Tax

Pre-tax contributions, also known as salary sacrificing/packaging, allows you to make before tax contributions to your superannuation. You can organise this through your employer or pay roll, who will be able to make a pre-tax deduction for you. These payments are taxed at 15%, which is lower than most people’s marginal tax rate. Salary sacrificing then not only boosts your super but also saves you on tax. There is a limit to the amount you can contribute each year. Including your employer contributions and your salary sacrificing, you cannot contribute more than $27,500 per financial year. It also is probably only worth contributing pre-tax if you earn more than $37,000 per year. Anything less and it doesn’t offer any tax benefits.

After-Tax

As well as pre-tax payments you can also make after tax payments to your superannuation. This can be in regular instalments or in a lump sum. You can contribute up to $110,000 in after-tax contributions each financial year and you also may be eligible for a tax deduction for these contributions. See the ATO website below if this interests you.

https://www.ato.gov.au/individuals/super/in-detail/growing-your-super/claiming-deductions-for-personal-super-contributions/

LISTO

The low income super tax offset (LISTO) is a government superannuation payment to help those earning low incomes save for retirement. If you earn less than $37,000 in the financial year, the ATO will pay a tax offset of up to $500 per year into your super account. They will work out your eligibility and pay it into your super, there is nothing you need to do to receive the tax offset.

Spouse Contributions

Another thing to consider is making contributions for your spouse. Often, women will have lower super balances then men as they take time out of the workforce to have and then care for children. For this reason they miss out on super payments and at retirement can be much worse off than their spouse. A way to combat this is for the working spouse to split their employer super contributions with the one staying at home. This is a great way to ensure the spouse having the time off is still receiving super and the working spouse may also be able to claim a tax offset for these contributions. Again, more information on this can be found on the ATO website.

Final Word

I can’t stress enough how important superannuation is! While it may not seem important now, it really is going to define our life after retirement. As you get older, your capacity to work is only going to decrease, so you aren’t going to be able to just pick up a job to earn some extra income. This is why super is there, and while you can earn that extra income, now is the time to build up that nest egg so you don’t have any financial worries when you retire.

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