What is super?

What is superannuation?

Superannuation has been around for many years. Originally only offered to some employees in the public and private sectors, superannuation was extended to most employees with the introduction of the Superannuation Guarantee in 1992. Superannuation is a form of long-term savings designed to provide you with an income in your retirement. Superannuation is a very effective way of saving for your retirement due to the tax concessions on your contributions and investment earnings, and a range of other government benefits.

Your employer pays regular contributions on your behalf to a superannuation fund which invests these contributions in a range of assets until you retire. You can also choose to make regular contributions to the fund. When you retire you are paid a benefit which is the total of all the contributions and any returns on your investment over the period of time you have been a member of the fund. You can usually take this benefit as a lump sum payment or as a pension.

What is a superannuation fund?

A superannuation fund invests your superannuation contributions along with the contributions from other members of the fund in a range of investment assets including shares, property, fixed interest investments such as bonds, and the short-term money market. A fund will usually offer a range of investment strategies which offer various potential rates of return and investment risk. A fund may also offer members life insurance cover.

The fund is operated by a trustee who must make decisions that are always in the best interests of the members of the fund. Often the trustee will engage professionals to manage the fund’s investments and look after the administration of the fund.

Who can become a member of a superannuation fund?

Usually you will join a superannuation fund when you become employed because if you are eligible for compulsory superannuation contributions, your employer must pay these contributions into a superannuation fund.

In most cases if you are under 70 years of age and working full-time, part-time or on a casual basis and being paid more than $450 (before tax) each month you would be eligible for compulsory employer contributions. If you are self-employed you have the option to join a superannuation fund and make contributions.

Who can contribute to a superannuation fund?

If you are eligible for compulsory contributions, your employer must pay a minimum of 9% of the amount you earn for your ordinary hours of work, into your superannuation fund. You can also make contributions directly out of your salary into your superannuation fund before tax is deducted and this is usually called ‘salary sacrificing’. These types of contributions are known as ‘concessional contributions’ because they usually attract a lower or concessional rate of tax.

You can also make after-tax contributions to your superannuation fund and these are known as ‘non-concessional contributions’.

There are caps or limits on the amount of concessional and non-concessional contributions you can make in any one financial year. If you exceed these caps you may be liable for extra tax.

If your income is below a certain level, you may also be eligible for the Federal Government’s Superannuation Co-contribution.

Who regulates superannuation funds?

Superannuation funds are tightly regulated to make sure they adhere to superannuation law and always act to protect the retirement savings of their members.

The Australian Securities and Investments Commission (ASIC) regulates the way in which funds communicate with their members and the information that must be given to them.

The Australian Prudential Regulation Authority (APRA) regulates how certain funds operate to make sure they meet their obligations, such as their financial obligations, to their members.

The Australian Taxation Office (ATO) regulates the superannuation tax rules.