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.

About the author

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

About the author

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

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