How does super work?
There’s a lot of jargon used when speaking about super in Australia. So we’ve broken down the complexity to explain what you need to know and how to make super work harder for you.
How it benefits you
Superannuation is one way to save for retirement. The savings in your super account generally cannot be accessed until your reach retirement age, helping you transition from earning a regular wage into retirement.
The savings in your super account grow over time thanks to contributions from your employers. Currently, employers are required to deposit 10% of your base wage into a superannuation fund of your choosing. This is called the Superannuation Guarantee (SG) Contribution.
You can also add your own contributions, or take advantage of government co-contributions (if you’re eligible).
The savings in your super account should also grow through investment performance. Your super provider will invest money on your behalf, with the aim of giving you the largest possible balance at retirement.
Insurance products can also be bundled into your superannuation. Purchasing insurance in this way means you pay from a lower tax environment.
How super works in Australia
At the heart of the government’s superannuation scheme is an intention to create an environment in which people can put money aside to provide a better income in retirement.
How super works for you
Several key components make superannuation work for you. Contributions, roll-overs, investment strategy and performance help your super grow for retirement.
Fees for managing your account come directly out of your super balance, and small differences in the fees charged could have a big impact on your super balance at retirement.
Additionally, some insurance products can be purchased through your superannuation fund rather than directly with insurers, so consider this when choosing your super fund.
Finally, different super providers offer different levels of customer service and account access. Find out more about managing your super.
Are you eligible for super?
Most people who work in Australia are entitled to have their super paid by their employer. This means your employer has to pay a minimum of 10% of your salary into your super fund if:
- you’re over 18 and you’re paid more than $450 (before tax) in a calendar month;
- you’re under 18 and are paid a minimum of $450 (before tax) in a calendar month and work 30 or more hours a week.
It doesn’t matter if you’re working full time, part time or casually – if you meet these requirements, you should receive SG contributions from your employer. There are some exceptions to this such as domestic workers (nannies, etc) don’t get paid SG unless they work for 30 hours per week, similar to the rules for under 18s. For more information, please refer to the ATO.
Sole trader or self employer
If you're a sole trader or in a partnership, you don't have to make Super Guarantee (SG) contributions for yourself. While it’s not compulsory, you can choose to make personal super contributions as a way of saving for your retirement.
There are also great government benefits to help you save for your retirement. Find out more here.
What your employer does
Your employer is required to pay your SG contributions to a super fund (most of the time, your choice of fund) at least four times a year, by the quarterly due dates. They have to use Ordinary Time (OT) earnings to determine the amount of your contribution.
All employers must have a nominated default superannuation fund available for their employees. Default funds can change between employers, so it’s important for you to have a look at your employer’s default fund to make sure it suits you.
At the time you start a new job, your employer will give you the option to either select their default fund or the fund of your choice. To choose a superannuation fund, you simply complete a standard choice form, which is issued by the ATO.
Your employer is required to give you a standard choice form:
- Within 28 days of beginning a new job;
- Within 28 days of your employer becoming aware that the Super fund currently receiving your SG contributions has become ineligible to receive them;
- Within 28 days of your employer switching their default fund if your SG contributions are currently being paid into this fund.
What your super fund does
Once your superannuation fund receives your contributions (either from your employer or your voluntary contributions), it invests this money into a default strategy (like the Virgin Money Super Lifestage Tracker®) or the investment options you’ve chosen yourself.
How you invest your money is your choice. Most super funds provide a number of options including a range of asset classes that offer different rates of risk and growth. You can choose how you'd like your money invested, if you want to. To find out more about investing choices, see our investment options page.
You can also transfer your money to a different investment option within your fund, or to another super fund at any time. But take note of any fees when doing this.
See below for more information on how your money is invested.
You can decide to have your regular SG contributions paid into your employer’s nominated default super fund or choose your own fund. You can also choose or change funds at any time - but your employer is only obliged to act on your choice once a year.
It’s all about finding the right super fund to meet your retirement goals. Even if you don’t know what they are today, that’s okay, it’s about getting the most out of your investment for your future.
And remember it’s your money. Be sure to keep an eye on your superannuation payments and balance to ensure your money is working as hard as it can for your retirement.
Even if your super fund isn’t linked to your everyday banking, lots of super funds (including Virgin Money Super) provide great online account management tools. We’re not suggesting you log in every day. But it’s good to jump into your account once every three months to make sure your employer is making your SG contributions, and to assess the performance of your investments. It only takes a few minutes.
Remember, if you’re changing jobs, a lot of things in your life are probably changing – and this is probably a good time to take a closer look at your super and the benefits it offers.