If you are preparing to join the Australian workforce, you may have heard of the term superannuation. Rather a unique concept, superannuation is an integral financial part of the Australian employment culture as well as economy.
In the case that you are just starting to work in Australia and need to start filling out employment forms, learning more about superannuation will be helpful to you. Keep reading to learn more about superannuation as we answer the most asked questions regarding the concept.
What is superannuation?
Firstly, what is superannuation? Superannuation is a type of monetary contribution employers pay to employees as part of their employment contract. The contributions are stored securely in a super fund, which acts as a retirement fund for individuals to access once they reach a preservation age (which is 60 years for most Australians).
While superannuation access is generally only permitted once an individual reaches preservation age, there are particular circumstances in which they can apply for early access or early withdrawal. These windows are usually under compassionate grounds, whereby individuals prove to the Australian Tax Office (ATO) that they are experiencing financial hardship. For example, early access was permitted for individuals experiencing financial hardship during the COVID-19 pandemic.
Paying superannuation contributions is compulsory for all employers in Australia, and employers are required to pay 9.5% of their employee’s ordinary pay or salary in super (in addition to their ordinary pay or salary). This percentage is expected to rise over the next few years, with plans of a 0.5% increase in July 2021 and further incremental increases by 2023 and 2024.
What are the advantages of superannuation?
In addition to acting as a security and retirement fund, superannuation also has many other advantages. In fact, it may help with reducing an individual’s tax payments – as rather than paying tax on their income, individuals can choose to voluntarily contribute to their superannuation, which is taxed at a lesser rate.
Superannuation also acts as a secure investment avenue for many individuals, as super is automatically invested into reliable assets by super funds. In the case that you would like to control where your super fund is invested in, you can forego the convenience of a managed super fund and transition into a self-managed super fund as well. In this way, you can more easily dictate what your money invests into as well as make direct contributions to your super fund (instead of waiting for your employer to).
Why is superannuation important for the Australian economy?
Simply put, superannuation is important to the Australian economy because it acts as a large domestic sum of national savings. By having this lump sum stored in the Australian economy, the country has funds available for domestic investment, which results in economic growth and development as well as higher standards of living in the future.
Still have more questions to ask about superannuation? Get your questions answered by contacting the superannuation experts and accountants at Access Super Audit here!