Retirement
Superannuation: Advantages and Disadvantages
Maximising the superannuation system isn’t easy.
Superannuation: Advantages and Disadvantages
When compared with the United States’ 401(k), which is an employee-contributed retirement fund, Australia’s superannuation gives more advantages to wage earners.
Since superannuation is compulsory on all employers, employees don’t have to worry too much about their retirement fund. Employees are guaranteed a minimum contribution of 9.5 per cent of their basic wage.
What are the advantages of superannuation
Steady income stream during retirement
The general purpose of superannuation is to ensure that Australians can have a steady income stream once they have retired. It is a great retirement saving strategy since the amount in a super fund is locked for a predefined term.
Eligibility
As long as an individual is employed and earns at least $450 monthly, employers are automatically required to open up a superannuation fund and make employer guarantee contributions to it at least quarterly. Domestic, underaged and private employees who work 30 hours or more weekly are also eligible.
Professionally managed
Companies usually hire professional fund managers to take care of their employees’ super. This allows you to guarantee that money invested in your super is in an expert’s hands.
Does not come from an employee’s ordinary wage
Employers are required to make separate contributions to their employees’ super, which means it will not be deducted from your pre- or post-tax income. The minimum guaranteed contribution employers must pay is 9.5 per cent of their employee’s ordinary wage.
Government support
The government could match up to $500 in a super contribution for individuals with salaries within the low-income threshold. Low-income earning individuals must meet the set criteria to be eligible for a government co-contribution.
What are the risks in superannuation
Lack of access
The money deposited into your super account will be locked for a predefined period. Because it is created to generate a steady income stream for retirement, Australians cannot withdraw their money until they reach their preservation age.
However, there are also few circumstances where you can withdraw your super early, such as severe financial hardship, terminal medical condition and temporary/permanent incapacity.
If you are a temporary resident in Australia, you are not eligible to make withdrawals unless you are leaving for good (in this case, super contributions will be taxed at 65 per cent).
Multiple super accounts
It is rare for employees to stay with just one employer until retirement. Though it allows them to experience career growth, it could also result in having multiple super accounts under an employee’s name.
Different employers have different preferred fund managers for their offered super. Employees who had changed jobs may find themselves paying for multiple fees on multiple super funds.
To avoid such issues, make sure that you coordinate this concern with your employer. Even if your employer has an existing business relationship with a fund manager, you can still freely select which super fund your contributions will go to. That way, you can avoid paying multiple fees and taxes.
High super fund management fees
Professional fund managers have different fees. Depending on where your super money is contributed, you could be paying more for a similar package that another fund management company offers at a lower rate.
Why should I invest in superannuation
Since superannuation is compulsory on all employers, employees can have an effective way to be financially prepared during retirement. But if you want to enjoy a better income stream through your super, you can do it by making personal contributions through salary sacrifice.
To do this, you and your employer must come to an agreement that a certain amount of your pre-tax income will be paid directly to your super fund. Your employer will automatically deduct your desired amount to your pre-tax salary and transfer it into your super account.
Aside from boosting your retirement nest egg, entering into a salary sacrifice agreement will also reduce the amount of income tax you need to pay. Any personal contributions made through salary sacrifice will be deducted from your pre-tax salary, which makes your taxable income lower and gives you an immediate tax benefit.
RELATED ARTICLES
About the author
About the author
Superannuation
Rest invests in US-based REIT amid changes in debt financing markets
In a strategic move that underscores the evolving landscape of commercial finance, Rest, one of Australia's largest profit-to-member superannuation funds, has announced a significant investment into ...Read more
Superannuation
Australia's super performance test transforms investing: What's the next move?
APRA’s latest performance test has done more than name and shame lagging super options; it has rewired investment strategy, compressed fees and accelerated consolidation across the $3Read more
Superannuation
Australia's super test dilemma reform could boost long-term gains while keeping accountability sharp
APRA’s latest performance test results have reignited a structural debate: can Australia hold funds to account while still backing the nation’s long-horizon investment needs? With the government ...Read more
Superannuation
Super funds rethink strategy as APRA's performance test hits a fork in the road
The latest performance test results have reignited debate over Australia’s superannuation benchmarking regime and prompted a formal government review. Behind the headlines, boards are quietly rewiring ...Read more
Superannuation
Aware Super enhances digital tools for financial advisers, boosting efficiency and client engagement
Aware Super has unveiled a suite of new digital features designed to streamline the workflow for financial advisers and their clients. This significant upgrade includes direct data feeds to Xplan and ...Read more
Superannuation
Super funds flip the script as APRA's performance test sparks strategic overhaul
Australia’s performance test has lifted the floor on retirement outcomes—and divided the industry in the process. After early shockwaves, failure rates have fallen and fees have trended down, but ...Read more
Superannuation
Rewiring Australia’s super performance test: from compliance brake to capital engine
Can an accountability tool double as a nation-building lever? Canberra’s review of the superannuation performance test aims to preserve member protection while freeing funds to back long-dated assets ...Read more
Superannuation
Superannuation guarantee rate rises to 12 per cent as parental leave changes take effect
The superannuation guarantee rate has increased from 11.5 per cent to 12 per cent from Tuesday, with super contributions also being added to Commonwealth Parental Leave Pay for the first time. Read more
Superannuation
Rest invests in US-based REIT amid changes in debt financing markets
In a strategic move that underscores the evolving landscape of commercial finance, Rest, one of Australia's largest profit-to-member superannuation funds, has announced a significant investment into ...Read more
Superannuation
Australia's super performance test transforms investing: What's the next move?
APRA’s latest performance test has done more than name and shame lagging super options; it has rewired investment strategy, compressed fees and accelerated consolidation across the $3Read more
Superannuation
Australia's super test dilemma reform could boost long-term gains while keeping accountability sharp
APRA’s latest performance test results have reignited a structural debate: can Australia hold funds to account while still backing the nation’s long-horizon investment needs? With the government ...Read more
Superannuation
Super funds rethink strategy as APRA's performance test hits a fork in the road
The latest performance test results have reignited debate over Australia’s superannuation benchmarking regime and prompted a formal government review. Behind the headlines, boards are quietly rewiring ...Read more
Superannuation
Aware Super enhances digital tools for financial advisers, boosting efficiency and client engagement
Aware Super has unveiled a suite of new digital features designed to streamline the workflow for financial advisers and their clients. This significant upgrade includes direct data feeds to Xplan and ...Read more
Superannuation
Super funds flip the script as APRA's performance test sparks strategic overhaul
Australia’s performance test has lifted the floor on retirement outcomes—and divided the industry in the process. After early shockwaves, failure rates have fallen and fees have trended down, but ...Read more
Superannuation
Rewiring Australia’s super performance test: from compliance brake to capital engine
Can an accountability tool double as a nation-building lever? Canberra’s review of the superannuation performance test aims to preserve member protection while freeing funds to back long-dated assets ...Read more
Superannuation
Superannuation guarantee rate rises to 12 per cent as parental leave changes take effect
The superannuation guarantee rate has increased from 11.5 per cent to 12 per cent from Tuesday, with super contributions also being added to Commonwealth Parental Leave Pay for the first time. Read more
More articles
OUR PLATFORMS AND BRANDS
- Accountants Daily
- Accounting Times
- Adviser Innovation
- Australian Aviation
- Broker Daily
- Cyber Daily
- Defence Connect
- Fintech Business
- HR Leader
- Independent Financial Adviser
- Investment Centre
- Investor Daily
- Lawyers Weekly
- Money Management
- Nestegg
- Property Buzz
- Real Estate Business
- Smart Property Investment
- SMSF Adviser
- Space Connect
- Super Review
- The Adviser
- Wellness Daily
- World of Aviation
EVENTS AND SUMMITS
- ACE25 The Accounting Conference and Exhibition
- Adviser Innovation Summit
- Australian Accounting Awards
- Australian AI Awards
- Australian Aviation Awards
- Australian Aviation Summit
- Australian Broking Awards
- Australian Cyber Awards
- Australian Cyber Summit
- Australian Defence Industry Awards
- Australian Law Awards
- Australian Law Forum
- Australian Space Awards
- Australian Space Summit
- Australian Wealth Management Awards
- Australian Wealth Management Summit
- Better Business Awards
- Better Business Summit
- Broker Innovation Awards
- Broker Innovation Summit
- Budget Summit
- Commerical Finance Awards
- Corporate Counsel Summit
- Defence & National Security Workforce Awards
- Fund Manager of the Year Awards
- ifa Excellence Awards
- Lawyers Weekly 30 Under 30 Awards
- New Broker Academy
- Partner of the Year Awards
- Partner Summit
- REB Awards
- Rising Star Awards
- SME Bootcamp
- SMSF Technical Strategy Day
- Super Fund of the Year Awards
- Women in Finance Awards
- Women in Finance Summit
- Women in Law Awards
- Women in Law Forum
LEARNING AND EDUCATION
MOMENTUM MARKETS NETWORK
LINKS
STAY CONNECTED
Make your nest egg grow. Register now for nestegg updates.