If you have never taken much notice of your superannuation account, you would not be alone. Many Aussies when asked questions about the status of their superannuation balances are quick to shrug the question and move onto a more interesting topic. But super is interesting, or at least it should be! If you have a job your employer should be paying a minimum of 10% of your salary into a super fund. Some jobs, specifically some government jobs pay even more, as high as 17% employer contribution. This is your money and just like the money you have in the bank you should be taking an interest in it. Just because you can’t access it until you reach 65 doesn’t mean you should not be taking note of what it is doing.
What is super and who should be getting it?
Let’s rewind and understand what superannuation actually is. Super is essentially a way to save money for retirement throughout your working life. Legally if your employer is paying you more $450 per calendar month then they should be paying you super. Your superannuation fund then invests this money over the course of your 30-year working life so that by the time you retire you have a nice little nest egg (presumably enough so that the government won’t have to pay you an aged pension, what is their ultimate master plan) The power of compound interest also comes into play and is the reason why if you focus a little bit on super whilst you are young, it can reap big rewards in your golden years.
For example – Sally earns 60K per year as a base salary plus 10% super. This means Sally’s employer will be paying $6000 into her super fund each year. Over 10 years of working for that employer Sally would have $60000 not including any growth in that 10 year period. If that super fund has had a return of 7% (below what super has averaged in the past 10 years) then that 60K is actually about 95K. Not bad for a forced savings account. Now imagine those returns over a 30 year time span, remembering that as your salary increases so do the super contributions your employer legally has to make.
What does a super fund actually invest in?
This is one of the things to find out as a person with a newfound interest in their super fund. There are different options and you do have some control over this. (Although seek advice, just because you have some choice does not necessarily mean you know better than the fund itself) The best way to find out more about what your money is actually invested in is to arrange a conversation with someone from your super fund directly. They should be able to provide you a breakdown of the the allocation you have. If you are younger and have longer until retirement you might be in more aggressive investments versus someone who is older will most likely have a balanced option that is less risky. Your own personal risk tolerance is an important consideration before you go changing up your super investments too much.
Can I contribute to my super?
You can make your own contributions into your super fund and there are a few different ways you can do this. You can enter a salary sacrifice agreement with your employer, which may reduce your taxable income. You can also boost your super by making your own after-tax contributions, ie out of your take-home pay. Superannuation payments are taxed at lower rates to encourage people to lock their money away for retirement. There are limits on extra contributions you can make into your super without incurring much higher taxation so be sure to do your research.
How should I pay attention to my super?
Well, I am glad you asked. The key things you need to ensure you are paying attention to your super are as follows.
- Each time you move jobs, give your new employer your existing super fund details. If are happy with you existing super fund, then ensure you keep them. If you do not provide a new employer these details then inevitably they will open a new account for you. This might seem fine to you but it is not. A super fund is not a free bank account, their are account management fees, insurance premiums and all sorts of deductions that will chip away at your capital. If you are right now thinking back to all the different jobs you have had in your life, it is worth doing a search for missing super accounts and rolling them all into your main one. You can even do this on your MyGov account now, so their really are not excuses not to roll all your little super accounts into one.
- Know the name of your superfund and keep all the important details such as internet log ins. If you are reading this article and you can not even name your super fund, then that is your first homework assignment. You need to know the name, your member number & any other relevant details that are relevant. Keep all this information in a file so it does not get lost. Your super fund should be sending you an annual statement at least once a year outlining your balance, fees & performance etc. However, you don’t need to rely on snail mail, if you have all the pertinent details, you should be able to log in online to view your balance & information about your investment allocation.
- Make sure you have provided your tax file number to your super fund. Just like most things in life, if you don’t provide your TFN, you will be paying a lot more tax. If you are unsure whether you have provided this to your fund or not, you can easily give them a call to double check this. You can also usually check this online in your account.
- Check that your employer is making your super payments. (Not just by looking on your payslip) Now you might think that all employers have integrity and this would never happen but this personally happened to my sister when she 19/20. She was working in a small town chemist and her employer was not paying her super…for two years. So it can happen, the only way to be 100% sure your super is getting paid is by monitoring your super account. You don’t need to check it once a week but super has to be paid quarterly at a minimum to a quick check in once every three months is not going to hurt
- Check your insurance premiums. Some super funds will automatically deduct premiums for all types of insurance. Life insurance, income protection insurance, total and permanent disability insurance, some of which are very valid especially depending on which line of work you are in, but you may not need everything that the fund has automatically got you paying for.
- Look at the performance of your fund. You can compare your super fund with other funds against the following criteria. Performance, Investment options, fees, insurance & extra services. If you feel the fund you are currently in is underperforming or it’s management fees are too high, look around. Just like anything in life their are always options to get a better deal. Just make sure you have the full picture and understanding before you switch to ensure it is going to be a better option for you in the long run.
When you’re a young woman in your twenties or early thirties, retirement can seem like a lifetime away. I guess technically it is. You have your whole career ahead of you, maybe plans to find a partner and raise kids, travel the world in a van….the idea of planning for your grey-haired future can be a bit of a downer. Superannuation is sometimes neglected in the F.I.R.E community due to the focus on retiring early and not waiting until preservation age to have a large investment portfolio to access. For the average woman though super needs to be part of the overall financial picture.
Not everyone will be in a position to retire by 40 with a large investment portfolio, in fact, most people will not. That is why super is important, it can mean the difference between a comfortable retirement and one that is less than stellar. Women especially need to think about this as there is a stark gender difference in the super balance of men and women in Australia. There are multiple reasons for this but the predominant causes are the gender pay gap, lower wages, part-time work, and career breaks to raise children. The earlier that you start taking an interest in your super the better.
