What is superannuation and why should I care?

If you’re a working Australian, no doubt you’ve heard of superannuation — or ‘super’ for short. But what is superannuation? Today we’re going to explain what super is, why it’s so important, and how you can get the most from your super fund. Get ready to embark on an exciting journey towards financial freedom!

While retirement may seem distant, understanding the importance of superannuation as early as possible will set you on the path to a secure and prosperous future. So, gear up and let’s explore why superannuation matters to Aussies like yourself! 

Building blocks of superannuation

Imagine superannuation as a sturdy foundation that paves the way to your financial success. It’s a savings plan designed to ensure you have enough funds to support your dreams in retirement. Through compulsory contributions from your employer and voluntary contributions, you’ll steadily build a financial nest egg that will empower you to live life on your terms. 

The magic of starting early

Did you know that time is your best friend in the world of superannuation? By starting early, you give your money more time to grow and benefit from the magic of compounding interest. It’s like planting a seed that blossoms into a beautiful tree over time. The earlier you start, the more your superannuation savings will flourish, providing you with a comfortable and stress-free retirement. 

Maximise your super with the power of salary sacrificing

Imagine having the ability to contribute to your super fund with pre-tax money. That’s the magic of salary sacrificing! By requesting your employer to voluntarily contribute a portion of your pre-tax salary to your superannuation fund, you have the potential to lower your taxable income, pay less income tax, and supercharge your retirement savings. These contributions, known as concessional contributions, are taxed at a lower rate of 15%, allowing your super balance to grow faster through compounding over time. Stay mindful of annual contribution limits (you can’t make concessional contributions of more than $27,500 per financial year), consider your financial situation, and seek advice from a professional to make the most of this strategy.

Swag Tip: Swag lets you boost your super by making voluntary contributions to your super account. If your employer uses Employment Hero, you can use the salary sacrifice feature under the Money tab of the Swag app. When you request salary sacrificing from your employer, they agree to make concessional pre-tax contributions to your super account, taxed at a lower 15% tax rate.

Here’s how it works: 

Joe, a hardworking individual earning $80,000 per year pre-tax, decides to explore salary sacrifice. Through the Swag app, he requests his employer to redirect a portion of his salary to boost his super. The employer accepts, making pre-tax contributions to Joe’s super account taxed at a lower rate of 15%. Joe also voluntarily contributes $4,000 to his super throughout the financial year, securing a better financial future for his retirement.

Embrace financial confidence

Secure your future goals. Financial confidence is a superpower in itself! By actively engaging with your superannuation, you take control of your financial destiny. With a well-managed super fund, you can pursue your dreams, whether it’s buying a home, starting a business, or enjoying a worry-free retirement. By embracing superannuation early, you’re setting yourself up for a future filled with possibilities. 

The ripple effect of responsible investing

Beyond personal benefits, superannuation allows you to make a positive impact on the world. Many super funds offer ethical and sustainable investment options, giving you the opportunity to support companies that align with your values. By choosing responsible investing, you can contribute to a better future for society and the environment.

Key super terms and definitions (so you can sound like you know what you’re talking about)

15% Pension Offset: a tax offset that comes alive when you use your super funds to purchase a pension income stream. This tax benefit reduces your tax liability.

ABS: The Australian Bureau of Statistics. These folks are responsible for collecting, crunching, and sharing all sorts of fascinating data about Australia’s economy, population, society, and environment.

Accumulation Fund:  The most common type of super fund, where contributions are invested to grow the overall value over time. It’s super that you pay into while you work. When you retire it changes its name to a pension fund.

Accumulation Phase: The stage of superannuation when contributions and investment earnings are being accumulated in your account. 

Annuity: A financial product that provides a regular income stream in retirement, typically purchased with a lump sum from a superannuation fund. 

Beneficiary: The person or entity nominated to receive superannuation benefits in the event of your death. This one isn’t nice to read, but it is important to know. 

Binding Death Benefit Nomination: A legally binding nomination made by a superannuation fund member, specifying who will receive their superannuation benefits upon their death. 

Capital Gains Tax (CGT): A tax on the profit made from the sale of assets, including those held within a superannuation fund. 

Concessional Contributions: Contributions made into a superannuation fund before tax is paid on them, such as employer contributions and salary sacrifice contributions. 

Contribution Cap: The maximum amount that can be contributed to a superannuation fund within a financial year, subject to certain limits. 

Defined Benefit Fund: A superannuation fund that promises a specific benefit to members upon retirement, based on factors like salary and years of service. 

Diversification: Spreading investments across different asset classes or sectors to manage risk and potentially enhance returns. 

Exit Fee: A fee charged by a superannuation fund when a member closes or transfers their account. 

Financial Planner: A professional who provides advice on financial matters, including superannuation, investments, and retirement planning. 

Industry Fund: A superannuation fund that is typically designed for members from a particular industry or sector. 

Investment Option: A choice offered by a superannuation fund, allowing members to select how their superannuation contributions are invested. 

Non-Concessional Contributions: Contributions made into a superannuation fund from after-tax income, not subject to additional taxation. 

Preservation Age: The age at which a person can access their superannuation benefits, which varies based on date of birth. 

Rollover (aka consolidation): The process of transferring funds from one superannuation fund to another, often done when changing jobs or consolidating accounts. 

Salary Sacrifice: An arrangement where an employee agrees to redirect part of their salary into their superannuation fund before tax is paid on it. 

Self-Managed Superannuation Fund (SMSF): A superannuation fund that is managed by the members themselves, providing greater control and flexibility over investments. 

Total and Permanent Disability (TPD) Insurance: Insurance coverage that provides a lump sum payment if the insured person becomes permanently disabled and is unable to work. 

Trustee: The entity responsible for managing and overseeing the operations of a superannuation fund in the best interest of its members.

To sum this all up: Superannuation is your ticket to financial freedom and a life filled with endless possibilities. By understanding its importance and taking an active role in managing your super as early as possible, you’re setting yourself up for a prosperous future. Remember, every small step you take today can lead to giant leaps towards a life you’ve always dreamed of. So, embrace the power of superannuation and unlock the doors to your financial success! Don’t forget to seek financial advice before making any big decisions and before salary sacrificing any amounts. 

Swag makes superannuation simple

Swag gives you the ability to conveniently access your Superannuation information whenever you want. You can import and save your superannuation details via the Money tab to keep your super details in one place. Soon you’ll be able to take control of your superannuation making it easier to manage, contribute and grow.

Also coming soon in the Swag app: Salary sacrificing! You can also ask your employer to pay part of your pre-tax pay into your super account. 

 

Disclaimer

The information in this article is current as at 27 June 2023, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero) for its Swag brand. The views expressed in this article are general information provided in good faith to assist employers and employees, and should not be relied on as professional advice. Some information is based on data supplied by third parties and whilst such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this article.