As was stated above, superannuation is the main form of retirement investment for most Australians. Given that this could be all that is standing between you living comfortably in your old age, or desperately trying to save every last penny, it is important that you have some awareness of what the superannuation system is and how it works. In the following paragraphs, we will go over some of the essentials to understanding superannuation funds and will hopefully help you to make an informed decision on which kind of fund suits you best.
Are You Eligible for Superannuation? – If you are between the ages of 18 and 69 and earn at least $450 per month (before tax), you should get superannuation contributions from your employer. Similarly, employees younger than 18 are also entitled to super payments, provided they also earn $450 gross a month and do more than 30 hours work per week. This applies whether you are in full or part time employment, contracted or casual employment, and even if you are only a temporary resident in Australia.
Employer Contributions – Currently, employers have to contribute an additional 9% of your gross pay into a super fund that meets all the necessary requirements. This payment must be made at least every 3 months. You are entitled to see proof of these contributions from your employer and if you are concerned that they may not be paying into your super fund as and when they should, you can make an enquiry at the Australian Taxation Office.
There is a maximum contribution base, which is revised periodically and more information on this can be found on the Australian Taxation Office website: www.ato.gov.au/superfunds/
Types of Superannuation Funds – There are a number of different types of super fund and all have their pros and cons, depending on your particular work and financial situation:
• DIY Superannuation Funds (also called Self-Managed Superannuation Funds, or SMSF for short) – These are small, self-run super funds where the members of the SMSF are its trustees. We will talk more about SMSFs further on.
• Industry Super Funds – This is where groups of business owners manage the superannuation funds and only the fund members can reap its rewards. For more information on this kind of fund, please visit our sister site www.industrysuperannuationfunds.com.au
• Employer Stand–Alone Funds – In this case, the super fund is managed by the business owners for their employees and how they are run varies from company to company.
• Public Sector Employees Funds – As the name implies, these are super funds run by the government, solely for its employees.
• Master Trusts Funds (also known as Wrap Accounts) – Like Industry Super Funds, Master Trusts are run by a group of businesses that all contribute to the fund. However, whilst Industry Super Funds turn all profits over to their members, Master Trusts are actively 'for profit' and the money raised is often put into further investments in the hope of making additional returns for the employers.