Super basics: How super works

30 August 2022

We aim to make superannuation easier to understand, to cut through all the jargon so that you can make informed decisions about your future.

This is the first in our new series of educational articles. We'll start by going back to the basics, explaining what super is and how it can help you achieve a comfortable lifestyle when you finish working.

What is superannuation?

Superannuation is money that is put aside for your future retirement.

In Australia, superannuation (or 'super') is a compulsory system requiring an employer to contribute to an eligible employee's retirement savings.

For most people, if you are working, your employer puts part of your salary aside, and a super fund will invest it for you until you retire. You can also top up these savings, and there are tax benefits to help your money go further.

Your super will keep growing over time, giving you a source of income when you finish working. The more you can put into your super during your working life, the more comfortable your future lifestyle may be.

How your super grows

Your super is a long-term savings plan. Three things go into your super to keep it growing:

• Contributions made by your employer
• Any additional contributions you may be able to make
• Investment returns and compound growth

We'll take a closer look at each of these next…

Employer contributions

If you work full time, part time, casually or, in some cases, as a contractor, your employer must pay money into your super account on at least a quarterly basis. This is known as the Superannuation Guarantee contribution.

This financial year (2022/23), the Superannuation Guarantee rate is equivalent to 10.5% of your salary. The Government will be gradually increasing the Superannuation Guarantee to 12% by 2025.

Your employer may also pay additional employer contributions as part of your salary package or as part of an industrial agreement or legislative requirement.

Additional contributions

Depending on your current situation and future goals, it may be worth considering additional ways to put money into your super.

You can make these contributions either before or after tax, and the type of contributions is best for you will depend on your income and personal situation. Find out more about the different types of contributions.

The Government offers various incentives to put money into super. These include tax benefits for couples contributing into each other's super, and Government co-contributions (where the government pays money into your super if you make additional contributions) for people earning less than $57,016 (2022/23).

Investment returns and compound growth

Your super generates investment returns. Some years this return is negative, so your balance decreases. However in many years it will be positive, and these investment returns are automatically put back into your super, where they are re-invested. Any further returns are re-invested again, and this process keeps repeating until you retire.

The accumulating effect of earning returns on your previous returns is called compound growth. It's a repeated cycle of returns and re-investing that can help your super grow faster as your balance grows.

Your investment choices

Your super fund will invest your money for you, with the aim of growing enough for you to retire comfortably.

You always have a choice of how you want your super invested. A range of investment options is available to cater for different financial situations and goals.

Investment options consist of one or more types of assets such as shares, bonds, cash, property and infrastructure. Each option has a different level of risk and potential returns, dependent on the assets that are being invested.

When choosing an investment option, three of the most important factors to consider are:

• Your age now, and when you plan to retire.
• How much money you think you will need to achieve a comfortable retirement.
• The level of investment risk that you are comfortable with at this stage in your life.

If your timeframe to retirement is long, generally you can afford to take more risk and potentially benefit from higher investment returns. If your timeframe is shorter, you may need to reduce your risk and potentially receive lower returns.

Further information about our investment options is available in our Investment Choice Guide.

Fees and costs

It's important to note that super funds charge fees and costs to manage your super, and these are deducted from your account balance.

Each super fund has a different way of charging fees. The most common types of fees across all funds are for administration, investment, advice and insurance.

At Brighter Super we work hard to keep our fees as low as possible. Find out more about our fees and costs.

Helping you with advice and guidance

Our team of super specialists can help you discover the best way to grow your super.

We offer our members Super Health Check appointments over the phone or video call, at no additional cost. We look at the current health of your super, discuss different ways to grow it, and check that you are on track for a comfortable life after work.