What is superannuation?
Superannuation is like a compulsory savings account. The Government requires employers to provide a minimum level of superannuation contribution for all employees, currently 9.5% of your salary. You can also make your own contributions to boost your savings.
This money is invested for the long-term to help fund your retirement, which is why the Government has "preservation" laws in place to ensure the money is generally not accessed before you reach your "preservation age" or permanently retire.
What are the two main superannuation arrangements in the industry?
There are two main types of benefit structures for superannuation funds - defined contribution and defined benefit arrangements.
A defined contribution account operates much like a bank account where deposits (i.e. contributions or rollovers) are made to the account and taxes, fees and insurance premiums (if applicable) are deducted. Investment earnings are applied to the account based on the returns (which can be positive or negative) of the member's chosen investment option(s).
Within a defined benefit arrangement, the benefit is calculated using a mathematical formula. The benefit tends to be based on age, years of membership in the Fund, and salary averaged over the last three years of employment.
Most defined benefit arrangements are closed now, not open to new members. If you recently joined a superannuation fund, you are most likely to be in a defined contribution arrangement.
Choice of Fund
Choice of Fund is the superannuation legislation that allows most Australian employees to choose to have their employer contribute to the superannuation fund of their choice. The fund of your choice must be an "eligible complying fund".
Generally, when you commence employment with a company they will have what's called a default fund. As a new employee you will automatically become a member of this default fund, with your employer contributions directed to this fund, unless you choose otherwise. For more information refer to your HR Representative.
You have the opportunity to choose an investment strategy for your defined contribution account(s). If you do not make a choice, your account will be invested in the superannuation fund's default investment option, chosen by the Trustee. Each investment option offers different potential rates of return and different levels of investment risk.
If you are in a defined contribution fund, your total benefit is invested in the option(s) of your choice. If you are in a defined benefit fund, investment choice applies to you only if you have an accumulation-style account to which Additional Voluntary Contributions (AVCs) or rollover amounts have been credited.
Most superannuation funds offer some level of death and/or disablement insurance cover to their members. Insurance cover and eligibility terms vary from one fund to another. Insurance is an important benefit designed to protect you and your family when you need it most, so it's essential you have adequate cover for your own personal circumstances.
In addition to Company contributions, you can make your own contributions to boost your super savings. There are generally two types of contributions - regular and lump sum. These contributions can be made either before tax (concessional contributions) or after tax (non-concessional contributions). There are maximum limits on the amounts of before tax and after tax contributions that will attract tax concessions.
Superannuation is one of the most tax-effective investments available to Australians. All complying superannuation funds receive concessional tax treatment. Taxes that apply to superannuation and pension products are explained in the Fund's Product Disclosure Statement.
The Government co-contribution is an additional contribution the Government may make to your super, if eligible, to encourage you to make additional personal after-tax contributions.