What is superannuation and why do you need it?

We’ve all heard of superannuation, but what exactly is it, how did it come into existence and why should you be thinking about it?

Superannuation is savings put aside for retirement.

While the concept has been around for centuries, superannuation in its current form came into existence in 1991 under the Bob Hawke Government, who made it mandatory that your employer put money into superannuation on your behalf. Back then, employers were required to set aside 3% of your wage, which increased over the years to the current level of 9.5%.

When done the right way, your superannuation should be enough to cover your whole retirement. The benefit to the Federal Government of enforcing super contributions and offering extra incentives is that if you have enough in your superannuation fund, you shouldn’t need to rely on the Government-funded age pension to get you through.

The biggest issue I see people have with superannuation is that they don’t understand the difference between what superannuation is and what their investments are. People think superannuation is made up of shares, property and a mixture of other investments that they don’t see or understand, and that someone else looks after. In actual fact, superannuation is made up of two distinctly separate things.

Superannuation as the investment structure
What defines superannuation isn’t just the value of the investments within it – whether that’s cash, term deposits, or property – but rather, superannuation is the vehicle, policies and structure by which your retirement savings are established and grown. Incentives from discounted tax rates to government co-contributions, reduced capital gains tax rates and a host of others make up superannuation as an investment structure, which is grown through investments.

Investments
If Superannuation is the bucket, investments are the ‘water’, or contents of your fund and can include a mixture of cash, term deposits, Australian or overseas shares, property and even crypto currencies like bitcoin. One or all of these can exist inside your superannuation fund and you still get all the same tax incentives.

My top three tips when it comes to superannuation

1.     Know what you’ve got - check your statement (which should be provided annually by your super fund) and stay across exactly what you’ve got in superannuation.

2.     Check what investments your superannuation is made up of - is it mostly cash? Or more aggressive investments like shares or property? Or somewhere in between? The more you understand this, the more you’ll be able to make your super work well for you.

3.     Understand what incentives you might be eligible for - whether that’s salary sacrificing extra super contributions through work, taking advantage of government co-contributions or making contributions for your spouse.

Interested in finding out more? Make sure to check out our Facebook and YouTube channel for more retirement planning information, or get in touch today for a personalised chat.