Written bySuperannuation is money set aside during your working life to fund retirement, held in a fund you generally cannot access until you reach preservation age.
Also known as: super, super fund, retirement savings
Key points
- Employers must pay the superannuation guarantee on qualifying earnings, and under payday super it must reach your fund within 7 business days of payday.
- You can add to super yourself, before tax through salary sacrifice or after tax, within the annual contribution caps.
- The money is invested until you retire, and most funds offer options from conservative to growth with different levels of risk.
- Funds usually offer default death and disability insurance, which generally starts only at 25 with a balance above the threshold, unless you opt in.
- Fees and investment choice compound over decades, so small differences early on can matter more than returns in any single year.
How superannuation works
Super is a savings system with a lock on it. Your employer pays contributions on top of your wage, the fund invests them, and earnings are taxed at a concessional rate rather than your marginal one. Across a working life, the compounding does most of the work.
Getting your money out
Super is preserved, meaning it stays in the fund until you meet a condition of release. Preservation age is 60, and reaching it and retiring is the usual condition. Turning 65 is a separate one that applies whether or not you have retired. After that you can take a lump sum, start an income stream, or do some of both.
Limited early access exists for severe financial hardship, compassionate grounds and terminal illness, each with its own test applied by the ATO or your fund. Schemes offering early access to super outside those rules are illegal, and the penalties land on you as the member.
Super and the rest of your money
Because super is locked away, it sits outside the money an Australian lender counts when you apply for finance. Your balance does not help you service a home loan, although the employer contributions on your payslip help confirm your income and employment.
It works the other way for the choices you make now. Extra contributions reduce your take-home pay, which changes what you can comfortably repay, while a First Home Super Saver arrangement lets some voluntary contributions be released towards a first home under ATO rules. Advice before locking money away is worth the cost.
Example
Ella starts a job on $70,000 plus super. Her employer pays contributions into the fund she nominates, and the fund invests them in a balanced option. Ella adds $50 a fortnight from her pre-tax pay through salary sacrifice, which trims her taxable income and lifts her balance over time. She reviews the insurance cover held inside the fund and consolidates an old account from a casual job, so she is not paying two sets of fees on one retirement.
Not to be confused with
- Salary sacrifice
- salary sacrifice is one way to put more into super, not another word for super itself
Frequently asked questions
What does superannuation mean?
It is Australia's retirement savings system. Employers pay a share of your eligible earnings into a fund, you can add more yourself, and the money stays invested until you reach preservation age and retire. It is your money, held in trust for you until then.
When can I access my super?
Generally once you reach preservation age and retire. Preservation age is 60 for everyone. Turning 65 is a separate condition of release that applies whether or not you have retired. Limited early release applies for severe hardship, compassionate grounds and terminal illness, each with its own test.
How do I find lost super?
Sign in to ATO online services through myGov and open the super section, which lists accounts reported against your tax file number, including any the ATO is holding. From there you can consolidate into the fund you want to keep. Check your insurance cover before closing anything.
Can I choose my own super fund?
Most employees can. You give your employer a standard choice form nominating your fund, and if you do not, contributions go to your existing stapled account or the employer's default fund. Some workers covered by particular agreements have limited choice, so check your employment terms.
Do I pay tax on super?
Employer contributions and salary sacrifice are taxed at a concessional rate inside the fund, and fund earnings are taxed as well, both usually below your marginal rate. Withdrawals after preservation age are generally tax free for most people. The ATO publishes the current rates and rules.
Related terms
Salary sacrifice
Salary sacrifice is an agreement with your employer to receive less salary in return for benefits paid from pre-tax pay, such as extra super or a novated lease.
Read definitionATO
The ATO is the Australian Taxation Office, the national tax authority that collects income tax, GST and PAYG, administers superannuation rules, issues rulings and enforces compliance.
Read definitionAPRA
APRA is the Australian Prudential Regulation Authority, the statutory regulator responsible for prudential regulation of banks, credit unions, insurers and superannuation funds, protecting depositors, policyholders and fund members.
Read definitionInsurance
Insurance is a contract where you pay a premium and an insurer covers specified losses, such as damage to a financed asset or a lender's loss on default.
Read definitionTrust
A trust is an arrangement in which a trustee holds legal title to assets and manages them for the benefit of beneficiaries under a trust deed.
Read definitionPortfolio
A portfolio is a grouped set of loans, leases and the assets behind them, held by one lender or lessor and managed together for reporting, risk and performance.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.