The cheat sheet:
Student's Guide to Understanding Superannuation
18 min read
Starting a new job is an exciting time filled with new challenges, goals and, hopefully, amazing colleagues. While you’re busy thinking about what to wear, meals to prep and names to remember, paperwork like your tax and super fund details are probably at the back of your mind.
Superannuation seems to be one of those things everyone has, but something a lot of people aren’t 100% clear about. Yet every working Australian has to have a super fund at some point in their life, and getting it sorted out early could be great for your financial future.
While super is regulated and managed by a whole host of companies and parties, you actually have a lot of options in choosing what exactly works for you. Australia has hundreds of super funds, each with their own fee structures, offerings, investment strategies and extras to choose from.
As a young Aussie, your super has a long time to compound and grow from returns on your investment, such as interest. This is why making decisions about fees, investment strategies and other variables right now can be really important. There is so much to gain from getting informed about how super works and how to get the most out of it while you’re young.
With all this in mind, we’ve created the ultimate cheat sheet to help students and young Australians understand the ins and outs of super, how to avoid common pitfalls, and how to get their super working as early as possible.
What is superannuation and why should you care?
Every working Australian must have a super fund, but many aren’t exactly sure what it is and why they should even care about it. Understanding how it works and its role in different stages of your life is important if you want to take control of your super.
What is superannuation?
Superannuation is extra money paid to you by your employer. With each payslip, your boss will set aside 11.5% of your ordinary time earnings to be paid into your superannuation. This contribution is called the Super Guarantee and is legally required to be paid by your employer if you meet the eligibility requirements. They have to pay it into your fund at least four times a year on the due dates.
You can also put money into your super personally, through voluntary contributions. Money in your super account is then invested by your super fund on your behalf. Superannuation is eligible for special tax treatment and government incentives, making it an attractive way to invest.
Australia has hundreds of superannuation funds, and you can usually nominate your preferred fund for your employer to pay your super into. If you don’t nominate a fund, your employer will open an account for you with their default fund. This could mean that with every new job, you get a new super fund, which could result in duplicate fees and charges. Because of this, it’s beneficial to give your new employer your existing fund details every time you change jobs.
How does it affect you?
Your super is probably one of the most important financial assets you’ll have in your lifetime. While you can’t access it until you reach your preservation age, which is dependent on your date of birth, it could greatly impact your future, so you’ll want to find a fund and account type that’s right for you. When doing so, you might want to consider things like fees, performance or returns, and extra features like insurance.
As a young person or student, one of your biggest priorities might be preventing your low-balance super account from being eroded away by fees. You could also benefit from making extra contributions to your super, as this may make you eligible to receive money into your super account from the government.
Why should you care?
When you stop working, you’ll need to have enough money to cover your living expenses like food and healthcare, and more if you want to travel overseas and live comfortably. For many Australians, superannuation will be one of your biggest assets.
Accessing your super might seem a long way off, but if you make some small, simple steps while you’re young, it can be much easier to achieve the kind of lifestyle you want when you’re older.
But how much difference could paying attention to how your super is managed really make? Over the course of 10 years and beyond, an average-performing fund (delivering the average growth/returns of 10.4%) could outpace a poor-performing fund by $38,000 dollars or more. By the time you withdraw your super, the difference could be hundreds of thousands of dollars.
Additionally, maintaining multiple super accounts instead of combining your balances into one account, usually means you’re paying duplicate fees. Also, you could be paying for multiple extras like insurance, which is often included in super and something you may or may not want to have.
Keeping track and finding your lost super
If you don’t combine your super and you have multiple accounts, you’ll likely end up paying duplicate fees. Each account typically attracts a fixed administration charge of at least $100 each year. So the more accounts you have, the more in administration (and other) fees you could be paying - when you could be paying fees for only one account.
Here are some eye-opening facts:
- 23%* of Australians have more than one super account
- There’s currently almost $16 billion in lost super*
* As at 30 June 2023
Having multiple accounts can lead to a lot of unnecessary duplicate fees. By the time you finish uni, you might have worked a few casual jobs here and there. You could have opened a new super account with each job, each fund charging you fees, so you're paying multiple fees. You could even have lost super.
Avoiding having your balance eroded by fees, along with ensuring your super is invested the way you want it to be – is one of the core reasons to keep track of your super.
So, how do you come out on top and ensure you’re not wasting your hard earned dollars?
How to stay on top of your super
The following are some simple steps you can follow to stay on top of your super:
Step 1:
The first step to staying on top of your super is to take note of any new super accounts with each new job. Be aware you can accumulate lost super and super across different accounts when you get a new job, change your name, or move.
Step 2:
If you think you might have multiple super accounts, our 'Find or combine my super' feature will help you find these accounts. You can choose to combine them into Student Super to avoid paying duplicate fees. By doing this, you’ll be able to choose a fund, account, and investment strategy that’s right for you. With just one super account, you’ll also find your super much easier to manage, with less paperwork to deal with.
Step 3:
If you’re starting a new job, take your chosen super fund’s details in with you on your first day so you can let your new employer know where to pay your super into. This way, they’ll know not to open up a new account for you.
Step 4:
Check every super statement carefully and make sure you understand what’s on it, as well as any fees and other deductions.
Working while you study?
Step 5:
Check your details are accurate and up to date, and that your employer is paying the right amount for the Super Guarantee (their required contribution on your behalf). Though your employer is required by law to pay your Super Guarantee, unpaid super isn’t unheard of, with Aussies shortchanged by billions every year.
Step 6:
Check your payslips, keep up to date on your super by regularly logging in to your account, and reviewing your statements. Remember to also review your chosen investment strategy to make sure you’re still happy with it.
How to find old and lost super
Australians collectively have $16 billion in lost super. Thankfully, anyone can search for old and lost super. Members can use our 'Find or combine my super' feature to find other funds and lost super. Then, you can choose to combine them into Student Super. Simply create an account, add your TFN, then click on 'Find or combine my super' in the menu.
Alternatively, you can search for lost super with the ATO, either by filling out the ATO’s Searching for Lost and Unclaimed Super Form or by applying for a myGov account and linking it to the ATO’s online services. Once you’ve linked your ATO account, you can log in and see all your super accounts. Just keep in mind that the info the ATO shows could be out of date by 6 or even 12 months. If you do combine and close any unwanted accounts, it may still show up on your account until they update their data.
If you’ve got a fund that you’d like to use, make sure to tell your employer so that they can pay your super into it. Every time you change jobs, or even change funds halfway through a job, you should do this to make sure you don’t lose any of your super.
What happens when you don’t combine your super?
Let’s say you don’t combine your super, and you accumulate a new account with each job. What happens?
- Insurance – You could be paying for multiple sets of insurance coverage if your super accounts include insurance. This could be thousands of dollars in premiums a year, which erodes your balance.
- Balance erosion – Fees can have a significant impact on your super, especially if you’re maintaining balances across multiple accounts. During the early years in the workforce when you’re working casual or part-time roles and having your employer pay relatively lower Super Guarantees, you’ll want to be vigilant about multiple super accounts as you’ll probably have far less super than those who’ve been working longer.
Note: Since 1 July 2019, super funds have been required to report inactive (no contribution for 16 months or more) and low-balance accounts (less than $6,000) to the ATO. The ATO has been trying to consolidate these inactive and low-balance accounts into the individual’s active account on their behalf. Also, members might be automatically opted out of insurance unless they contact the fund to opt-in.
Why picking the right super fund matters
Choosing the right super fund for you can be really difficult with so much going on. However, it’s a really important decision and you should ensure you choose a fund that’s right for you. Things like investment strategy, performance and fees which differ across funds can make a big difference, they're worth reviewing and understanding what works for you.
What does a good super fund look like?
Don’t leave it to your employers to choose a super fund for you. Choose a fund that’s right for you and you could be better off at the end of your working life.
Investment strategy
Many funds offer variations of four core investment options: high growth, growth, balanced, and conservative. Each option has a different risk and return profile. As suggested by their names, high growth options invest in assets that tend to be more volatile, meaning they can go up and down in value a lot, but also have a higher potential return.
While conservative options usually invest heavily in cash and less-risky assets, which have a lower potential return. It’s a good idea to consider your personal risk profile and goals when selecting your fund and investment option.
Performance
Performance among even the best funds can vary from year to year thanks to the economic cycle.
Most super funds will state that past performance is not indicative of future performance, which is true! But, if you’re interested in a fund, you might want to compare its performance history against a benchmark before you dive in and open a new account.
After tax and fees
Check after-tax-and-fees average annual returns for at least five years and up to 25 years or beyond for a more accurate idea of the fund’s performance.
Fees
In addition to checking the after-tax-and-fees averages, you can use actual fee structures to compare different funds. Review their administration, investment, advice, contribution, transaction, and other fees that apply. Your chosen super fund should be completely transparent about their fees.
Fees are a fundamental factor to consider because they’re deducted right from your super balance, so they can have a major impact on how much you end up having for the future.
Things to watch out for
High fees and low average annual returns are a few of the things to look out for. Aussies pay tens of billions of dollars in fees to their super funds every year, and higher fees don’t necessarily mean better performance. Some better performing funds charge around 1.00% or less, while some poorly performing funds charge an average of 2.07% or more.
Also, don’t forget to check whether you’re paying for insurance, which is also deducted from your super balance. Life insurance, total and permanent disability, and income protection insurance are some of the common types of coverage you can get through super. It’s a good idea to check the PDS and have a think about whether you want and can afford the cover.
Weighing up your options
The super fund you pick could have a big impact on your investment returns, fees and the features you can use. Different types of super funds were built for different people. For example, industry funds were developed by trade unions and industry bodies, whereas retail funds were developed by financial institutions. Other types of funds include corporate funds, which are set up by specific employers for their own employees only, and self-managed super funds, which you set up and manage yourself.
It’s a good idea to check out the websites of any fund you’re considering, as well as ask the fund any questions you have. Then, you can make a comparison between them all and decide which fund to go with.
Don’t be afraid to switch
Avoid setting and forgetting your super. Instead, take an active role with regular reviews. If your fund isn’t hitting the average growth rate of at least 7% or 8% after fees (for balanced-option investment strategies) consistently, it could be time to look at switching to another fund. Also, if you’re paying more than the Aussie average of 1.23% a year, it might also be worth your time to check your fund’s fee structure and consider switching.
The potential costs of staying with a poor performing fund could be significant. If you stick with a subpar super fund, you could be hundreds of thousands of dollars worse off by the end of your working life.
Similarly, a fund with high fees can erode your super balance, and because of how long your money has to compound, the few thousand dollars extra you end up paying in fees could become a significant amount of money – as much as hundreds of thousands of dollars – at the end of the three, four, or five decades of your working life.
How to get the most out of your super
By reading this guide you’ve already taken the most crucial step in getting the most out of your super: getting informed and learning about how super works. But there’s a lot of things super can do that people don’t usually know.
What you can do
Taking advantage of government and tax incentives and making personal contributions can be effective ways to help your super dollars go further.
Government co-contribution
Low or middle-income earners can leverage this government incentive by making personal after-tax contributions. If you’re eligible, the government will make a co-contribution up to $500 each financial year. This could mean that for every dollar you contribute, the government will give you an extra 50 cents! It’s all done automatically through your tax return, so if you meet the criteria, you don’t need to do anything to apply for it except make sure that your TFN is added and make a personal contribution.
First home super saver scheme
Most people think that you can’t touch your super money at all until you retire but that’s not completely true! You can actually take out super contributions to go towards paying for your first home! You can make personal contributions and later apply to have these contributions released (up to $50,000 plus earnings per person) to help fund your first home deposit. Since your before-tax contributions are taxed at 15% rather than your marginal tax rate, it could allow you to save up for a deposit in a tax effective way.
Low income superannuation tax offset
If you earn less than $37,000 a year, you might be eligible for the low income superannuation tax offset. This offset is 15% of your before-tax contributions for the financial year, up to $500. The good news is, you don’t have to do a thing as long as you’ve added your TFN! If you’re eligible, it will be paid directly into your super fund once your tax return has been processed.
Voluntary contributions
You can boost your super by making extra concessional or non-concessional contributions into your super account. With a concessional contribution, you can actually put your income into your super before it’s taxed, which means you reduce your taxable income and you can take advantage of the 15% tax rate within super. Caps on both types of contributions apply.
Tax deduction for contributions
Additionally, you might be able to claim a tax deduction for after-tax personal contributions which basically means that if you put money into your super from your personal bank account or after-tax income, you might be able to claim it at tax time. However, this means you won’t receive a government co-contribution (the first dot point) for this personal contribution. Just mindful that in addition to the contribution cap, there are a few pre-tax contribution exclusions that you should be aware of.
What does success look like?
As with any part of your financial life from budgeting and saving to tracking expenses, your super deserves a proactive approach. It’s your money, so take ownership by checking your payslips and regularly reading through your super statements.
As a younger person, you have many decades before you stop working. You can actually use this to your advantage. If you make a few small and easy decisions now, starting with getting your super organised, through to making personal contributions to your super, you could find yourself really well off in the future!
The top nine lessons learned
Review these key lessons to help you make smarter, more informed decisions about your super:
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