What is superannuation?
Superannuation, often referred to as ‘super’ is designed specifically to help Australians save for retirement.
It is one of three ‘pillars’ on which Australia’s retirement income system is based:
- compulsory super
- a means tested Age Pension, and
- voluntary savings, including home ownership.
Given the average Australian can expect around 27 years of retirement1, and the Age Pension is designed to provide only the most basic needs, the more you can save during your working life, the more comfortable those retirement years are likely to be.
By the time you leave the workforce, your super account is likely to be one of your biggest financial assets, so it’s worth taking an interest now. Knowing what super is, and how it works, can give you the confidence to make financial choices that are right for you.
Get to know the basics
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Super is designed for the long-term
With the luxury of time and the power of compounding investment returns, you could build a considerable super balance – one that will hopefully see you through 20 or more years of retirement.
Your employer pays you super
- During your working life your employer must pay money into a super account in your name. This is called the Superannuation Guarantee (SG).
- Employers are currently obliged to contribute 11.5% of your 'ordinary time earnings' to your super account.
- Employer contributions to super and investment earnings are taxed at lower than your usual income tax rates.
Grow your super
- You can also make voluntary contributions to your super.
- Your money is pooled with other members’ contributions and invested, so it can earn returns and grow over time.
Access your super
- When you’re eligible, you can access your super to provide an income and/or lump sum payment, which is generally tax-free.
Contributing to super
Your employer pays contributions into a super account for you. They are required by law to pay a minimum amount based on the current SG rate (11.5%) of your “ordinary time earnings”. The SG rate is scheduled to increase to 12% by 1 July 2025. These employer contributions are on top of your salary and wages.
Ordinary time earnings are what you generally earn for ordinary hours of work, including certain bonuses, allowances, and some paid leave. Payments for overtime hours are generally not included in ordinary time earnings.
You can also add your own money into your super account with before or after-tax contributions.
Investing your super
Your contributions are pooled with other members’ contributions and invested in a range of asset classes, depending on your investment option.
Many super funds offer investment options that are made up of underlying asset classes including:
- Australian and international shares
- Real assets like property and infrastructure
- Alternative assets
- Fixed interest
- Cash
All investments carry some risk, and the mixture of underlying assets within an investment option will dictate the level of risk, and potential returns, associated with that option.
Growth assets – such as Australian or international shares – have higher potential for returns but also carry greater risk.
Defensive assets – such as fixed-interest or cash – have a lower level of risk and lower potential returns.
There are many investment options that sit between high risk, high reward and low risk, low reward.
You can choose to invest your funds in one investment option or across multiple options – each with different underlying assets, levels of risk, and return potential.
Most Mercer Super members are invested in Mercer SmartPath®, our award-winning life-stage investment option which automatically adjusts the level of risk as you get closer to retirement. For example, younger members will have a higher allocation of growth assets, compared to an older member whose allocation will gradually lean towards a more defensive asset allocation. Mercer SmartPath is designed for members who'd prefer to ‘set and forget’ their investment strategy.
Insurance in super
Although super is primarily a vehicle for you to save for your retirement, it also serves an important secondary purpose: it can allow you to access valuable insurance, often without the need to supply personal information such as your medical history.
You may have access to several types of insurance with Mercer Super, including death cover and Total and Permanent Disablement cover (TPD). While the types of coverage differ, they all share a common goal of providing financial security for you and your loved ones if something ever happens to you.
Accessing your super
You can only access your super when you meet a condition of release, the most common being ‘preservation age’, which is currently age 60.
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Read next:
Have a say in your super
Now, more than ever, members have more choices as to where their super is paid, which is why it’s important you make sure you know who your employer is paying it to.
Find out how to nominate your super account.
How to consolidate your super in 3 simple steps
Combining of all your super accounts is one of several strategic steps you can take to potentially simplify, strengthen and secure your retirement outlook for the better.
Are your beneficiaries up to date?
By nominating a beneficiary you can have peace of mind your money will be paid to the people you care about most.
1. The latest ABS data shows men, on average, spend 22 for men and women 33 years.
Disclaimer: Issued by Mercer Superannuation (Australia) Limited ABN 79 004 717 533, Australian Financial Services Licence # 235906, the trustee of the Mercer Super Trust ABN 19 905 422 981 ('Mercer Super'). Any advice provided is of a general nature and does not take into account your objectives, financial situation or needs. Before acting on any advice, please consider the Product Disclosure Statement available at mercersuper.com.au. The product Target Market Determination can be found at mercersuper.com.au/tmd.
The material contained in this document is based on information received in good faith from sources within the market and on our understanding of legislation which we believe to be accurate. Neither Mercer nor any of its related parties accepts any responsibility for any inaccuracy.
This information is based on the interpretation of current tax laws which may change. You should obtain your own tax advice.
Mercer financial advisers are authorised representatives of Mercer Financial Advice (Australia) Pty Ltd ABN 76 153 168 293, Australian Financial Services Licence #411766. The value of an investment in the Mercer Super Trust may rise and fall from time to time.
The investment performance, earnings or return of capital invested are not guaranteed. Past performance is not a reliable indicator of future performance. 'MERCER’ is an Australian registered trademark of Mercer (Australia) Pty Ltd ABN 32 005 315 917.