What’s super and how does it work?

A helpful guide to understanding the basics of super.

Superannuation, commonly known as ‘super’, is money set aside while you’re working so you’ll have money for retirement. Your money is put into a fund, where it’s invested on your behalf by a trustee, to help you earn returns and grow your savings.

The amount of super you’ll end up with when you retire depends on a number of factors, including:

• how much has been made in contributions
• how long your super’s been invested
• the type of investment option you’ve selected
• the investment returns your money has earned, and  
• the amount you’ve paid in fees and insurance premiums

Many people think of their super as an investment that takes care of itself but the choices you make about your super and investments could make a big difference to your quality of life in retirement.

What are super contributions?

A super contribution is money that’s deposited into your super account, either as an ongoing payment or as a one-off. Usually made by you or your employer.

What is the superannuation guarantee?

Your employer is required to contribute 11.5% of your before-tax income into a super fund. These payments are known as super guarantee (SG) contributions (also known as employer super contribution), and they form the foundation of your super. You can find more information on the superannuation guarantee page.

Employer super contributions are taxed at a lower rate than most income tax brackets, so it’s important to provide your tax file number (TFN) to your super fund to avoid extra tax being taken out. You’ll also need to provide your TFN if you want to make any personal super contributions.

How can I make other contributions into my super?

In addition to your SG contributions, you can also contribute more money to your super account in the form of voluntary contributions. You can make these contributions using either before-tax or after-tax money. In many cases, they’re taxed at a lower rate than your income, so they can be a good way to build your retirement fund while being tax-efficient.

Keep in mind that there are caps to the amount you can contribute depending on your age and circumstances.

What types of super funds are available?

There are a number of different types of super funds on the market, including:

• Retail super funds—typically owned and run by financial services companies and open to anyone to join.
• Industry super funds—usually tied to a specific industry. Some are open to anyone, while others are only open to employees in that industry.
• Corporate super funds—typically arranged by a company for its employees. Some are operated by the employer (under a board of trustees), while others outsource their operation to a retail or industry fund.
• Public-sector super funds—usually only open to employees of federal and state government departments.
• Self-managed super funds (SMSFs)—private superannuation funds that are managed by members (one to six people).

In most cases, you can choose which fund you’d like your super to be invested with – so it pays to do your homework and find a super fund that offers the investment options and features you’re looking for.

How do I choose a super fund?

Most employees can choose their own super fund when they start a new job. 

You’ll typically have a choice between your employer’s default fund or one you select, which could be a super fund you joined with a previous employer, an SMSF, or a new fund altogether. 

If you don’t choose a super fund, your SG contributions will be paid into your ‘stapled fund’. SG contributions will only be paid into your employer’s default fund if you don’t have a stapled fund.

A stapled fund is an existing super fund that generally has previously received contributions from you. If you have more than one super fund the Australian Taxation Office (ATO) will determine which one is your stapled fund.

There are a few things to consider when choosing a super fund. These include the fees charged, investment options, insurance cover available and its cost, and the fund’s investment performance. It’s a good idea to compare super funds online and weigh up your options.

Also remember that most super funds charge fees – so it might be worthwhile sticking to one fund even if you change employers to avoid doubling up on costs.

If you think you might have lost or unclaimed super, you can search for it via the ATO super search service.

What’s MySuper?

Many super funds offer a simple and cost-effective super account called MySuper, which comes with low fees, basic features and a simple, default investment option.

You always have the option of moving your super to an account of your choice.

How can my super be invested?

When it comes to how your money is invested in super, many funds offer various investment options that you can choose from. Choosing the most suitable option will typically come down to your goals for retirement, your attitude to risk and the time you have available to invest. For example, you might decide to take on higher-risk investments with the potential for higher returns at a younger age, and transition to more stable investments like cash deposits as you move towards retirement.

When can I access my super?

You usually can’t access your super money until you reach what’s known as your ‘preservation age’. However, if you’re a first homebuyer and make extra contributions, you could be eligible to withdraw $50,000 from your contributions and put it towards a home deposit under the First Home Super Saver Scheme. You may also be able to access your super before retirement in the event of your permanent incapacity, financial hardship or specified compassionate grounds.