How Super In Australia Works: All Your Questions, Answered by the ATO

You’ve got questions. The ATO has answers.

This post is written in conjunction with the Australian Taxation Office.

To help prepare students for tax time, we asked our members if there was anything you wanted to ask the Australian Taxation Office (ATO) directly, and you responded… overwhelmingly.

In fact, you had so many questions, we couldn’t even fit them into one article! So, hit the link to see our previous piece outlining "How Tax In Australia Works". Today, we’re looking at superannuation.

Check out what Graham Whyte, the Assistant Commissioner, Superannuation at the ATO had to say in response to your queries!

All answers below come direct from the ATO.

Q: "What is super?" (Erica from WA)

A: Superannuation, also known as super, is money that is put into a super account by your employer on top of what you earn. You can access these savings to help you live a comfortable life when you retire.

Q: "Do they take the superannuation guarantee out of my wage or does my employer pay an extra rate to contribute to my super account?" (Zoe from NSW)

A: If you're eligible for super, your employer has to pay an extra contribution, called super guarantee. The percentage rate for superannuation guarantee payments by your employer is currently 10.0 per cent and it's paid by your employer on top of your wage into your super account. 

The guarantee increased from 9.5 per cent to 10 per cent in July 2021, and is set to rise again to 10.5 per cent from 1 July 2022 (for the 2022/23 financial year). It will continue to increase by 0.5 per cent every year until it reaches 12.0 per cent on 1 July 2025.

This is just the current minimum amount. Some employers offer even more super to kick-start your super savings. You can also add your own money to grow your super piggy bank and in some circumstances, the Australian Government puts money in too… how awesome is that!

Q: "Does our super begin when we start working full-time or part-time?" (Juliana from NSW)

A: If you’re 18 years or older and earn $450 or more before tax in a month, your employer has to pay you super on top of your salary.

If you’re under 18 years old and earn $450 or more before tax in a month, you have to work more than 30 hours in a week to be paid super.

The ATO has a tool that can help you check if you’re entitled to super.

Did you know it doesn’t matter if you’re working full-time, part-time or on a casual basis? You may still be eligible to be paid super!

Q: "Do you have to sign up at a super company or is it automatic?" (Juliana from NSW)

A: Just like setting up your bank account, there are lots of super funds out there to choose from. Mostly you can choose the super fund you want your super money paid into. When you start work and if your boss has to pay you super, you’ll complete a form called the Super standard choice form so you can make your choice in writing.

If you’re unsure which fund to choose, your boss will choose a fund for you; they usually have what is known as a default fund for people who don’t choose their own fund. If you already have a fund but can’t remember it or want to change, you can do that all online through myGov; you just have to link to the ATO, it’s super easy!

Q: "Do we pay tax on our Super?" (Shane from VIC)

A: You generally have to pay tax on your super, but there are times that you don’t. It just depends where you sit in the super lifecycle.

When your employer makes compulsory payments (or contributions) into your super fund before tax, you get taxed at 15 per cent. But if you’re a low or high income earner, things are a little different. For example:

If you earn $37,000 or less, the tax paid on your super up to $500 is automatically refunded back to your super account. This is known as the low income super tax offset.

If you earn more than $250,000 in combined income and certain super contributions, you have to pay extra tax.

Q: "Are you able to take money out of your superannuation before you retire? Can super be accessed during a debt crisis? If not, what is the legal age to retire and receive your super?" (Kyden from WA)

A: You must be a certain age before you can access your super money. This is called the preservation age. If you were born after 1 July 1964, the current preservation age is 60 years old.

Your preservation age may seem far away, but putting some goals in place now will help you enjoy your retirement more when you start saving now!

There are times when you can access your super earlier as long as the strict conditions are met. These are mainly about medical conditions or severe financial situations.

Q: "Why is superannuation a compulsory system for financial retirement? Can't I keep control of this money myself?" (Xi from WA)

A: Super is compulsory in Australia to encourage everyone to save up enough to provide for themselves when they finish working. It’s intended to relieve the pressure on Australia’s tax system and reduce dependence on age pension payments.

Even though it’s compulsory, you can still be in control of your super because you decide how your savings are invested.

If you want even more control over your super, you can choose to start a self-managed super fund. In a self-managed fund, you’re in charge of everything but there’s a lot of work involved and many rules to follow. You need to decide what’s right for you.

Q: "Is it true superannuation companies invest our money? If so, do we have a chance that we could lose our superannuation if their investment goes wrong?" (Zoe from SA)

A: Money in your super account is invested by your super fund. Your fund will probably offer you a variety of super investment options to choose from. The returns you get from investment can impact how fast your super grows so it’s important you choose the best option for you.

Your super fund will provide you with a disclosure statement. This tells you what you need to know before choosing an investment option. Most funds also have a default option. If you’re not sure of your options, or are feeling confused, ask your super fund to help you understand your options.

It’s easy to forget about your super, so to prevent your investment from turning bad, make sure to keep track of your super and investments!

Q: "Is it better to change superfunds (like shop around) or is it better long term to keep it in the same one? Are there disadvantages to changing?" (Emily from NSW)

A: Different super funds have different benefits, fees and investment options. It’s best to shop around and compare super funds to find what’s best for you. If you decide to change super funds, remember to check if there are exit fees and if changes can affect your contributions.

Make sure to tell your boss you’ve changed super funds so they can make contributions to the right account. If you start a new job and your super fund transfers automatically into a new fund, don’t worry: you can keep your super at your fingertips and check where your super is.

Our mates at the ATO host an annual competition called "Tax, Super + You", in which students from Years 7 – 12 can win cash money prizes by flexing their creative skills. Taking part in this competition will not only give you an insight into the value of tax and super, but you also have the chance to win a share of over $6,000 in prizes! Entries close 23 August 2019. Find out more!

Header Image: iStock.com/quisp65 & iStock.com/Gunay Aliyeva