What you need to know about Super
Simply put, think of your superannuation as a mandatory retirement fund. Your employer is required to pay 9.5% of your salary into a superannuation fund, and you also have the option to contribute more on top of your employers’ share. Starting January 1, 2014, if you have not elected a super product of your choice, your employer will contribute to an authorized MySuper product, usually with a single, balanced investment option and minimal fees.
Superannuation funds may have different additional features, such as insurance coverage, and corresponding fees. It’s important to check if you really want these features or you can opt for a fund that’s simpler and with less fees. However, some funds also offer insurance that costs less than if you avail separately. If you changed employers, you may also have funds in more than one super, with both of them charging you fees. It’s a good idea to consolidate your fund to minimize cost and make the most out of your super. Don’t hesitate to ask questions to help you weigh your options.
Choosing a fund
Not all funds are created equal. Thus, do not just choose a fund at random and forget about it. Some funds are more volatile than others, which means it may incur loss in the short run but tend to have greater returns in ten years or more when the good years outweigh the bad. Less volatile funds usually do not incur such losses, but also have relatively less returns. When choosing a fund, factor in your age, your retirement plans, and your tolerance to investment risk. If you are not planning to redeem your super within five to ten years, a more volatile fund may give you more value for your money.
There are some websites that can help you compare fund choices. You may also consult an accountant, your HR department, or a financial counselor to help you match your fund and contributions to your needs and goals.
Contributing extra to your super
Aside from your employer’s contribution to your super, you can also contribute your extra savings. There are several ways to do this:
- By ‘salary sacrifice’. If you are earning more than $37,000, you can ask your employer to deduct a certain amount of your income before tax to contribute to your super. This also gives you a tax deduction and can really boost your super. However, there is a limit to how much you can contribute annually by salary sacrifice, and some employers may not agree to this arrangement.
- Alternatively, you can also contribute from your after tax income. You can deposit directly to your super, or some employers might agree to automatically deduct it from your salary. The government may also match your after tax contributions to your super, called a co-contribution.
Can I redeem my super before retirement?
In limited conditions, you may redeem a part of your super subject to the approval of the fund trustee. One of these conditions is extreme financial hardship. You must be receiving Commonwealth Government income support, usually associated with unemployment, for at least 26 consecutive weeks.
Your super may also be redeemed on ‘compassionate grounds’ to pay for medical or funeral expenses, if you are diagnosed with a terminal illness, if your home is on the verge of foreclosure, or for home and vehicle modifications due to disability or medical conditions.
Can I use my super to pay off my credit card debt?
If you are having financial problems, it is very tempting to break into your super for a quick fix Beware of scams especially targeting individuals who are struggling with debt. Scammers may use words such as ‘unlocking’ or ‘taking control’ of your super, or moving to a ‘self-managed super.’ Redeeming your super before you reach the age of 55 is illegal and can get you big tax fines.
The super is a great instrument to prepare for your retirement. If managed right, you can maximize its benefits such as tax discounts, additional contributions, and insurance. You can choose a super fund depending on your needs and risk tolerance. Redeeming your super before retirement to pay off debts should be treated as a last resort, and transact only with authorized government agencies in doing so. You can always consult a professional financial counselor to discuss your options or to help you manage your super.