While retirement may be a few years – or decades – away, the way super works means the earlier you start paying attention to it, the better off you’ll be when you retire.
A healthy super account could be the difference between living out your retirement dreams, or a modest retirement on the age pension.
The basics of super
What's the point of super?
The purpose of super is to provide Australians with an income in retirement to substitute or supplement the Age Pension. The compulsory super system was launched in 1992 as one of the three key components of Australia’s retirement income system:
- A means-tested age pension
- Compulsory superannuation savings; and
- Voluntary private savings, both inside and outside the super system
Rather than Australians relying solely on the age pension, the aim is to have the three pillars work together to help people live out a comfortable retirement.
How much does your employer have to contribute to your super?
The amount that employers must contribute to an employee’s super is dictated by the Superannuation Guarantee (SG), which is currently set at 10.5% of an employee’s ordinary time earnings.
The SG is scheduled to increase by 0.5% each subsequent financial year until it reaches 12% in July 2025.
However, various employers may be required to contribute a different amount under specific Awards or workplace agreements, or because of a type of super account that an employee may have.
For example, if you are a member of a defined benefit division of Qantas Super, the amount that your employer is required to contribute to your super account is calculated differently.
What are the different types of super accounts?
There are two main types of fund or account ‘designs’: accumulation and defined benefit. The way your super benefit is calculated depends on which type you have.
Defined benefit funds are less common – most types of these funds are being phased out and are closed to new members. Defined benefit funds work by calculating a member’s benefit based on a formula. This formula usually includes factors such as the member’s salary and period of employment.
Some funds, called ‘hybrids’, are a combination of defined benefit and accumulation accounts. For example, some members in a defined benefit division of Qantas Super may have accumulation accounts linked to their defined benefit component.
Qantas Super Divisions 1, 2, 3, 4 and 15 are defined benefit funds.
Accumulation funds are the most common. They work a bit like a bank account: your balance is determined by the contributions made to it, the fees and costs deducted from it, and the investment returns received. Investment returns can be positive or negative.
Qantas Super Divisions 3A, 5, 6, 7, 10, and Gateway are accumulation funds.
How does super grow?
Watch this short video to learn more about how super grows:
For the majority of Australians with accumulation funds, super grows through two main things: contributions and investment earnings.
Contributions include the Superannuation Guarantee contributions from your employer, plus any voluntary contributions you may make, and co-contributions you may be eligible for from the government. Any rollovers you make will also help your balance grow.
Investment earnings, meanwhile, are the returns that your money earns from being invested. Depending on the market’s performance, these earnings may be positive or negative.
One of the benefits of super is that your money earns compound interest, or interest on interest. For example, if you invest $1,000 and earn $100 in interest, you’ll then begin to earn interest on your new total of $1,100.
Any fees and charges are deducted from your account balance automatically, so you don’t have to worry about getting any bills.
How is super invested?
With $2.7 trillion* in super, it’s now the second largest part of Australia’s financial system. So where does that money actually sit?
Well, it’s invested in a range of different assets by your super fund, on your behalf. The types of assets it’s invested in are similar to those you can invest in outside super, such as shares, property, and cash.
But while your fund invests your super for you, you can still play an active role in how your super grows through something called investment choice.
Investment choice means you can pick which investment option – or combination of options – you want us to invest your money in on your behalf. Each option is generally composed of a certain type of asset, or a particular mix of assets. Each option carries with it a different level of risk and potential for reward.
The types of assets your super is invested in depends on the option you choose. These assets can be broadly categorised as either growth or defensive assets.
Defensive assets, such as cash and fixed interest, carry lower risk but offer lower returns. The trade-off is that these types of investments generally hold steady, providing a greater sense of security for investors who may be uncomfortable with risk, or less time left in the market.
Growth assets include property and shares. In general, these types of assets have the potential to generate higher returns over the long term – but they carry a higher degree of risk, because the value of your investment can fluctuate over the short term.
Watch this short video to learn more about how different investment options are designed:
What are you investing?
You can choose which investment options apply to your:
Your future contributions include contributions from your employer, and any roll-ins, regular or one-off contributions you may make. You can specify how much to invest in each option by whole percentages.
Current account balance
You can specify how much of your current account balance to invest in each option by dollar amounts, or by whole percentages.