Planning on Working in Australia? Here is our guide to understanding Australia’s Superannuation System.
The Australian Superannuation system has evolved into being one of the best retirement savings schemes in the world and all workers in Australia, both temporary and permanent will participate in the scheme whilst they are working in Australia.
Superannuation acts as a bit like a compulsory pension fund and every employer is legally obligated to pay at least 9.5% of your wage into a superannuation account. Some government employees are paid higher levels of superannuation. Most Australian universities for example pay 17.5% of your base wage per year into a Super fund of your choosing. This is important to understand when seeking employment as some salaries are advertised inclusive of superannuation while others are not. It is a good idea to clarify this at interview stage if you are ensure.
Choose your Superannuation Fund
Some employers will have a company preferred Superannuation fund however you can also nominate a fund of your own choosing. You can make additional payments to your superannuation during the course of the year and this is often used as a means to minimise tax as Superannuation carries a flat tax rate of 15%. This is called Salary-Sacrificing. At the time of writing the cap on all super contributions whether by your employer or through salary sacrificing is 25,000 AUD in total.
Access funds when you leave
Superannuation represents enforced savings for Australians as once funds are added they cannot generally be accessed until you are between the ages of 55 or 60 depending on your date of birth. If you are not permanently retired then you have to wait until the age of 65 to access your funds. If you work in Australia as a foreigner temporarily and do not intend to return once you leave then you can generally get access to your “Super” (as it is colloquially known) once you have left Australia.
There are a variety of superannuation funds offering various investment strategies that you can choose to suit your particular circumstances. Most employees opt for the superannuation fund recommended by their employer, but there is no obligation to choose this option.There has been considerable debate in Australia about the relevant merits of industry superannuation funds and retail superannuation funds. It is fair to say that there are good and bad examples of each type. The key difference between the two is that industry sector funds are generally run by unions or industry bodies on a non for profit basis. Whereas a retail superannuation fund has been developed by a financial institution such as a bank or insurance company. These funds claim that their point of difference is the investment expertise that they offer and they charge commissions and management fees accordingly.’
Tax Free Savings
The thing to remember about superannuation is that it provides a tax effective long term investment structure for you and your family. Putting money in superannuation is only the first part and it is ultimately the investment that you choose that will determine the size of your superannuation nest egg. You can choose to structure your superannuation investment according to your appetite for risk and can instruct your fund to invest in cash, shares, bonds, property or a mix of them all. Most funds will group these areas into profiles to make this easier to navigate.
The sums that ordinary Australians retire with can be quite substantial. For this reason alone, understanding how superannuation works and what your options are can make a significant impact to you later in life. For that reason, if in any doubt at all about your superannuation options, it pays to seek truly independent advice from someone with expertise in the field.