why do we pay super?

Why do we pay super?

Superannuation is an important part of every working Australian’s future. Yet, it is something many of us find confusing and complicated.

According to a recent survey completed by Virgin Money Australia, the top barriers for people engaging more with their super is a lack of knowledge, the perceived complexity of super, and a doubt that their involvement would make a difference1.

At its core, superannuation’s main purpose is to provide people with financial security during their retirement – but there are so many more reasons why it helps Aussies get ahead.

So, here are some other great purposes of superannuation, and ways you can use yours.

1. It helps you take an active role in saving for retirement.

While your employer will pay a percentage of your earnings into your super account each pay, you can also make voluntary contributions to your own super fund too. Here are a few ways you can play a bigger role in managing your super.

Salary sacrifice

Setting up a salary sacrifice with your employer means that each pay cycle before tax, a regular contribution (separate to your usual super payments) is paid into your super fund. These payments are taxed at a lower rate than the marginal tax rate, but your contributions are capped at $27,500. This can be a good option for people earning more than $45,000 per year.

After-tax contributions

You can make contributions to your super after-tax – these are known as ‘non-concessional contributions’. Making payments this way has a higher cap of $110,000 per financial year.

Downsizing? Selling your home could help you make extra super contributions

If you’re 60 or older, are selling your home after owning it for more than 10 years, and meet some further requirements, you may be eligible to contribute an amount from the sale of your home into your super fund. This payment can be split between two people.

See the Money Smart website for more information on different ways you can contribute to your super.

2. Super can provide flexibility in retirement

There is a lot of flexibility in how you can withdraw and spend your super once you have retired.

The two main options are to withdraw your super as a lump sum, or transfer all or part of your super balance to a pension and begin pension payments. You can also do a combination of the two, for example – you could take out a lump sum payment and have a pension.

Both options have their benefits and setbacks, and everyone will have different lifestyles and financial commitments. Contacting your super fund or obtaining professional advice is always a good idea before making major changes to your super.

3. Reducing reliance on the Aged Pension

Most working Australians get a percentage of their salary paid into a superannuation account. You can also make extra contributions to your super fund, with some tax-free benefits depending on your age, and whether payments are made before or after tax.

When we have enough money in our superannuation fund to retire comfortably, it means we don’t have to enlist the help of government funded schemes like the Aged Pension, easing pressure on government services.

Learn more about superannuation and find the right fund for you

Playing an active role in your superannuation is setting up your future self for success.

There are many funds out there, but it’s important to find a super fund that meets your needs now, and can grow with you into retirement.

Look for a fund with low fees, investment options, ethical investments, or benefits for parents. Whatever is important to you in life, you want to find a super fund that’s aligned to your values while being suitable for your long-term financial needs. 

Want to see how Virgin Money Super stacks up?

Find the right superannuation fund to suit your needs.

Learn more about Virgin Money Super


Important information

[1] Based off a recent survey by ERGO Strategy Research and Insights for Virgin Money Australia