We get it. Student life, while different for everyone, is consumed with juggling lectures and tutorials, essay writing and group assignments, cramming, making friends, and learning something new every day. If you’ve got a part-time job and a social life to consider on top of this, it doesn’t leave much time to think about superannuation.
But did you know that super is one of the most significant financial assets most Australians will ever have? By making the right choices early on, you could give yourself a big head start!
What is superannuation?
Superannuation, also known as “super”, is money that employers are legally required to put aside on behalf of their employees. Nearly everyone with a job—be it full-time, part-time or casual—is required to join a government-approved superannuation fund. In most cases you’ll be able to choose a super fund of your choice, but if you don’t nominate a fund, your employer can put your super in a fund of their choice. Over time your super is invested for you and it compounds, so that when you’re able to access your money, it can provide financial support for your later years.
How does superannuation work?
When you start a new job you’ll be asked to nominate a superannuation fund. Once you’ve done this, your employer will put a set amount of money into a superannuation account on your behalf every time you get paid. This money (equivalent to 11.5% of your wage) is then invested by the managers of the fund into things like shares, property, government bonds and cash deposits. You can usually choose how you want your money to be invested. Each investment strategy has different rates of risk and return, you can choose the one that’s right for you.
Let’s say you’re 21 and you earn $800 from your regular fortnightly wage, plus a bonus of $150 and shift loading of $50. This means, your total income is $1,000. Your employer would need to put $115 into your super account ($1000 x 0.115).
If you continue like this, in 10 years time , you could have a super balance of around $41,883!
Pro tip: look organised on your first day of work by opening a super account before you start work.
Super is YOUR money
The key thing to remember about superannuation is that it’s YOUR money. With this in mind, choose a fund that:
- (a)Can find lost super accounts and help you combine them.
- (b)You can keep when you change jobs.
- (c)Has transparent reporting so you know what’s happening with your money.
Some super funds are designed for older members with high balances, and some are designed for younger members starting out with super. In most cases you have the right to choose your own super fund. If you’re a low income earner with a low super balance – which as a student, you likely are – Student Super is designed to protect early balances with zero admin fees for members with balances under $1,000. See our Fees & discounts page or PDS for details.
How to make super contributions
While your employer contributes to your super (11.5% on top of your wages), there are other ways to help boost your super through personal contributions and take advantage of compound interest while you’re young.
You can contribute either your before-tax or after-tax income. Money you contribute straight from your bank account into your super fund is after-tax as you’ve already paid income tax on your wages.
There are two ways to contribute your before-tax income. You can ask your employer to increase your super contributions by taking a percentage out of your pay (this is called a ‘salary sacrifice’ or ‘salary packaging’). You can also contribute directly from your bank account but when tax-time comes around, you claim a tax-deduction on this contribution.
Making extra contributions to your super after-tax could help you become eligible for contributions from the government. The super co-contribution helps to boost the super of low income earners. The government will match up to a maximum of 50c in every dollar you contribute up to $500. Eligibility for the co-contribution works on a sliding scale. The lower your income, the bigger co-contribution you could receive. You can read more about the government co-contribution and other incentives here.
Your co-contribution will be automatically calculated and paid into your super account once you have lodged your yearly tax return. Just remember, there are limits to how much you can make in personal contributions.
Finding a fund that’s right for you
Choosing a super fund is a bit like dating—you should start with some key things you’re looking for and see what fund best ticks your boxes. Factors you might like to think about include:
- Fees – Make sure you check the fees in the PDS, high fees can mean that your employer contributions can quickly get eroded.
- Investment options – make sure you’re comfortable with the options and risk.
- Performance – look for consistently good performance.
- Insurance – check what cover is available and what it will cost.
- Extra benefits – specifically designed to suit your needs/lifestyle.
Just like a date, you want a fund you’re compatible with. With Student Super, you can set up a super account before you’ve even got your first job, so that you’re ready to go when the right job comes along. You can also continue to grow your super when you graduate, as your Student Super account will change name to Professional Super. Professional Super is matched to the next part of your journey, and has educational benefits that are better tailored to young professionals.
Understanding super
If you don’t really understand super and your financial focus is elsewhere, you’re not alone. It’s not just students that are disengaged with super—it’s Australians in general.
For your parents generation, owning property was an important part of planning for retirement however with house prices booming lately, it’s become very difficult for a young person to buy property. This means that home ownership has fallen a lot and those who do buy property are more likely to take longer to pay off their large mortgages or buy apartments which may not increase in value as much as a house. Because of this, people are looking to other ways of sorting out their futures, and superannuation is a great way to do that.
If you’re working, you should start thinking about your super. Especially since you’ve got time to let your super compound and grow. Super could become one of your biggest assets in the future.
Super is more important than you may realise, so join us today at Student Super to start saving.
Note: Superannuation projection is based on ASIC’s MoneySmart calculator. Calculations are based on a starting super balance of $0, an income of $26,000 p.a., employer contributions of 11.5% p.a. in year 1, increasing by 0.5% per annum until it reaches and stays at 12% from 1 July 2025 onwards, fees of $78 and 0.617% p.a., and an investment return of 6.94% p.a.
