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How Superannuation Fund Works

By: Alan Preston   •   27 November, 2014

Superannuation fundSuperannuation was introduced as a retirement vehicle which allowed you to see yourself through (decently) your post-retirement life. Over the years, it has also ramified into an asset diversification strategy, but deep down it needs to pass the Sole Purpose Test which says that its only goal is to aid the retirement prospects.

Contributions to the Super fund

The Superannuation fund comprises of the compulsory 9.5% (set to go up to 12%) contributions made by your employer and the toppings you make over and above this. With what we have witnessed about the Baby Boomer generation, it is only natural to expect that we will be more diligent with the extra contributions, making them as much as we can. For starters, government matches you to your last dollar in terms of non-compulsory contribution if you fall in the low income bracket. This is called co-contribution.

We mustn’t err where the Baby Boomers did

If you start saving when you are in your 30’s (unlike many from the past generation), you will be able to have the backing of a decent retirement nest egg. To add, there are plenty of tax advantages to be had. Similar investments made outside Super are not treated as leniently as the ones within Super. In fact, one can successfully argue that even insurance is cheaper when bought within your Super.

Choice of Super

Individuals can choose their own Super in absence of which the employers can make their contributions to the default Superannuation fund. In case you want to choose your super, you need to tell this to your employer and fill the ATO’s Standard Choice Form.

Additional funding

In addition to your employer contribution and those that you make from time to time, you can also bolster your fund by making salary sacrifices and transferring the funds from your other Supers into your main Super account frequently.

Once you retire, you can choose to get your Super money in the way of a recurring monthly stream, a lump sum or a combination of both types.

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