Superannuation explained

Super is money put aside by your employer, which is saved while you are working so you have money to live on when you retire from work. It can include voluntary contributions that you make. 

From 1 July 2014, your employer is required to pay a minimum of 9.5% (gradually increasing to 12% by 2026) of your ordinary wage into super whether you work casual, part-time or full-time hours or even if you are a temporary resident.  You may also be entitled to superannuation if you are a contractor who is paid primarily for labour even if you have an Australian Business Number (ABN). Generally your employer must pay super if you are:

  • 18 years old or over and are paid $450 or more before tax in any calendar month
  • Under 18 years old, are paid $450 or more before tax in a calendar month and work more than 30 hours a week.

What is a superannuation fund?

A superannuation fund is simply a structure in which your money is held and where investments are made to increase your money over your working life.  There are several different types of superannuation funds and in most cases you can choose which super fund you would like your contributions paid to.

You can choose to make extra contributions to your super by:

  • salary sacrificing - your employer can put some of your pre-tax income into super along with your employer contributions - this has the added benefit of reducing overall taxable income.
  • personal after-tax contributions - you can also ask your employer to take money from your pay after you have paid tax on it and contribute it to super or alternatively you can make transfers to your superannuation fund yourself from savings outside super. 

ASIC's Money Smart website has a Super Contributions Optimiser to help you decide which type of super contribution will give your super the biggest boost. 

Is super the best place for my savings?

Superannuation has a tax rate of 15% so is one of most effective ways to save for your retirement.  However, since you can't access your money (except in special circumstances) until you reach your preservation age and retire permanently from the workforce, you may need to consider whether putting extra money into super is right for you.  Your preservation age is the minimum age, set by law, until which your super must be 'preserved'. Your preservation age is based on your date of birth and ranges from 55 to 60 years, with anyone born after June 1964 having a preservation age of 60 years.  Anyone born before July 1960 has a preservation age of 55 years.

ASIC's Money Smart website has a number of resources to help you decide where best to put your extra funds:

Super versus mortgage tool
Retirement planner calculator