Super 101 - What is Super?
Boring. Confusing. Maybe that’s how you feel about super. But did you know around one in every ten dollars you earn goes into super?
For most people super is one of their biggest assets, along with a house, so shouldn’t you know how your fund works?
Super is simply the pot of money you’ll live on when you stop work. Of course there’s the Government Age Pension, but that may not be enough to live on comfortably. That’s where your super comes in.
By law, your employer must put a certain amount of your earnings regularly into your super fund. These contributions are taxed at just 15% (or 30% if you earn over $250,000p.a.). Over time these contribution build up and earn interest, and when you reach your ‘preservation age’ (which is 60 if you were born after July 1964), the money will be available to you.
There are a lot of different types of super funds out there, so it’s easy to get confused.
So what type of fund are you with?
There are ‘industry’ and ‘public sector’ funds, such as your ESSSuper, which:
• offers accumulation and defined benefit funds to eligible members
• has low to mid cost management fees, and
• are ‘not for profit’, so all the profit goes back into the fund to benefit members.
Then there are ‘retail funds’ run by banks or investment companies, which:
• are usually recommended by financial planners
• typically charge higher management fees, and
• are owned by a company that takes some of the funds profits.
‘Accumulation’ versus ‘defined benefit’ funds
The most common type of super funds are accumulation funds, where your super ‘accumulates’ or grows depending on:
• how much your employer and you put in (your ‘contributions’)
• how much your fund earns from investing your money
• less insurance premiums, fees, costs, taxes and any investment losses.
A defined benefit fund has different rules and your super benefit is calculated based on:
• your contribution rate (the percentage of your salary contributed)
• how long you’re a member of the fund,
• whether you are full or part time,
• your final average salary when you retire, and
• in some cases your age.
We understand that super may not be your top priority right now. But a significant amount of your earnings goes into super and while you can’t take it out right now, don’t leave it too late to take an interest.