What is superannuation and why superannuation important?
3 Min read
Key takeaways
- Long-term investment
- Can help to reduce your tax
- Access your superannuation from age 60
In Australia, superannuation is a long-term savings plan designed to provide income in retirement. it’s a compulsory system where employers must contribute a percentage of an employee’s earnings (11.5% of salary) into a super fund, which is then invested to grow over time. This compulsory amount is estimated to grow to 12% by 1 July 2025.
The reason why the government is forcing employers to increase their super contributions is so there will be less reliance on government support such as Centrelink later on. The government is trying to encourage Australians to fund their own retirement savings by building up their superannuation as they keep working. This is known as accumulation phase.
Key Aspects of Superannuation
Employer Contributions (Super Guarantee - SG)
- Employers must contribute 11.5% (as of July 2024) of your ordinary time earnings to your chosen super fund.
- This will gradually increase to 12% by 2025.
Personal Contributions
- You can voluntarily contribute more to super (e.g., salary sacrificing or after-tax contributions) for tax benefits and greater retirement savings.
Tax Benefits
- Contributions and earnings within super are taxed at concessional rates (typically 15%), which is lower than most income tax rates.
- You can also reduce your tax by making pre-tax contributions into superannuation and then claiming a tax deduction when you complete your taxes.
- When you access super in retirement (if structured correctly), withdrawals can be tax-free, along with a monthly income payment tax free.
Accessing Your Super
- Generally, you can only withdraw super when you reach your preservation age (between 55-60 depending on birth year) and retire or transition to a retirement phase.
- Early access is strictly limited to severe financial hardship or special circumstances.
Investment Growth
- Super funds invest in shares, property, bonds, and cash to grow your balance over time.
- You can choose investment options based on risk tolerance (e.g., conservative, balanced, high-growth).
Types of Super Funds
- Retail Funds – Run by banks or financial institutions.
- Industry Funds – Typically lower fees, run for members’ benefit.
- Self-Managed Super Funds (SMSFs) – You manage your own super investments.
- Corporate & Public Sector Funds – Offered by specific employers or government sectors.
Why Super Matters
Super is crucial for financial independence in retirement, as government Age Pensions may not be enough to support a comfortable lifestyle. Maximizing super contributions and choosing the right investment strategy can make a huge difference in retirement savings.
If you want to learn more about increasing your superannuation and retirement savings, feel free to contact our financial planners who service the Yarraville, Williamstown, West Footscray areas.
Start Your Financial Journey Today
At Point B Planning, we’re committed to helping you achieve financial freedom and peace of mind. Contact us today for a free consultation, and let us guide you through every stage of your financial journey.
- Phone: (03) 9044 1950
- Email: admin@pointbplanning.com.au
- Address: 12 Taylor Street, Yarraville, Victoria
