Did you know that superannuation assets for Australia totaled $3.4 trillion just at the end of the March 2022 quarter? Millions of people rely on superannuations or supers, to survive after officially retiring.
But precisely what are superannuations? And how does superannuation work? If you want to know the answer to this question, and more, then you’re in the right place.
In this guide, we’ll teach you everything you need to know about this vital retirement concept. That way you can start to feel financially secure about the future. Let’s get started!
What Is Superannuation?
Before we learn how superannuation works, it’s important to understand exactly what it is. Superannuation refers to money that your employer sets aside from your paycheck each month.
This money is then invested in a variety of assets to increase your balance over the years. This is important because any money that’s put into your super will be used for you to live on once you decide to retire from work.
There are generally stipulations on when you can access the money found in your superannuation. Typically it’s either when you retire or if you reach the age of sixty-five.
Remember that the more money that’s put into your super will result in more options for you when you finally decide to retire.
How Does a Superannuation Work?
Now that we know more about superannuations as a concept, we can dive into the specifics of how they work.
The minute you start working for an employer that pays you more than $450 a month, that employer will be legally obligated to make contributions to your super.
There are laws in place that dictate how much the employer must contribute to your super. This amount of money is referred to as a ‘super guarantee’. It is equal to 10% of whatever your taxable income is.
Contributions to a super cannot be taken out of your wages or your salary. They need to be on top of whatever their employer owes them. However, this isn’t the only way that you can add money to your super over the years.
In addition to the superannuation guarantee, you can also contribute money into your account, either before or after any tax contributions.
Some super accounts even give you the option to add insurance options if you’re injured on the job.
Superannuation Law Change
We mentioned that your employer is only obligated to contribute to your super if they pay you at least. $450 per month. Well, keep in mind that this law is about to change.
Starting in July of 2022, employers will need to contribute regardless of how much they pay you. However, there is a caveat.
If you’re under the age of eighteen, then you will need to work at least thirty hours a week for your employer to contribute to it.
What Should You Do If Your Employer Isn’t Paying Your Super?
These types of conversations can be difficult. But, if you think your employer is contributing enough to your super, then it’s important to address it.
First, find out whether or not you’re even eligible for the super. If you are, then use this superannuation calculator to determine how much your employer should be contributing to your super.
Then, ask to talk about your superannuation with your employer. Ask them questions like:
- How much are you contributing to my super?
- How often do they contribute?
- What funds are they contributing?
Ideally, your employer will be forthcoming and willing to make changes if there are any mistakes present.
However, if they refuse to contribute to your super when you’re entitled to it, then you can contact 13-10-20 on the phone for help.
How to Choose a Super Fund
When setting up your superannuation account, you will get to choose which type of superannuation fund your employer (and you) can contribute to. There are a variety of factors that you should consider.
First, take a look at performance. You want to make sure that your super fund is bringing in a good investment return. That way, you can make up for any fees and similar costs.
Speaking of fees, you should also look for super funds that offer low fees. Every super fund will charge fees of some sort. In some cases it’s a dollar amount; in others, it’s a percentage of what you contribute.
Sometimes it’s both of these things. The lower the fees, the more money you’ll save over time. You should also try to avoid actions that increase fees, like switching accounts often.
Next, super funds will typically offer insurance for their members. This can include life insurance, disability insurance, and income protection. Make sure you compare the premium rates and coverage from all of these insurances.
Depending on your living situation, you may want more or less coverage. Finally, make sure they give you different investment options. For example, maybe your priority is to grow your money.
Or maybe you want to be more conservative with the money you put into the fund. Make sure your super fund can accommodate this.
If you’re feeling overwhelmed with all the super fund options, then consider following this URL. Financial advisors like this can help you find the best super fund for your specific needs.
Appreciate Learning How Superannuation Works? Keep Reading
We hope this article helped you answer the question, How does superannuation work? As you can see, saving money through superannuation doesn’t need to be hard.
But, it does require serious consideration on your part. So, make sure to reach out to a financial professional if you need help.
Did you enjoy this article? For more great ones just like remember to keep exploring our site.