Maybe you know that Super is important but you don’t know how it works and the different types of accounts that exist. The best place to start is how superannuation works.
How does Superannuation Guarantee work (your employers contribution)?
Under Australian law, all employers are required to contribute to their employee’s superannuation that does not come at a cost to the employee. This type of contribution is called Superannuation Guarantee Contribution (SGC) and is equal to 9.5% of the employee’s salary which can be paid weekly, fortnightly, monthly or quarterly.
Benefits of contributing extra (QLD Gov Employees)
Some employers reward you for contributing to your Superannuation through Personal/Voluntary or Salary Sacrifice contributions. For example, Queensland State Government:
Employer Contribution (SGC) – 9.5%
Employee Contribution – 5%
Extra Employer Contribution – 3.25%
TOTAL = 17.75%
This means that employees of the Queensland State Government get 17.75% superannuation, whereas other employees may only get 9.5%. This can make the balance of your account increase quite quickly from one year to the next.
Common types of accounts
The most common types of superannuation if you work for the Queensland State Government are ‘Accumulation’ & ‘Defined Benefit’ accounts. Depending on when you entered the government workforce is dependent on whether you will have a Defined Benefit or not.
This works like a bank account in which your superannuation money ‘accumulates’ during your working life. You and your employer will continue to contribute to this account over time and these funds will continue to grow until you retire.
These funds can be invested into the share market into a combination of shares, property trusts and commodities. The combination of this will depend on the investment preference you have requested when you established this account. If you didn’t choose an option, you would have been put into the standard investment option based on your occupation, age and gender. The investment option will affect how much money your superannuation funds earn as each option has different risk.
These are less common but there are still many people with these accounts. They used to be standard for Queensland State Government Employees but were phased out many years ago, so usually only long-standing employees will have them. A Defined Benefit works by using a formula to calculate how much you will receive when you retire. The formula uses a ‘Multiple’ and a ‘Future Multiple’ which can be found on your statement. The higher the multiples, the better it is for you.
In working out your multiples, your superannuation account considers the number of years of service. The more years you have, the better the multiple and therefore, the better the balance for you at retirement. It is important to note that a Defined Benefit account is not affected by any market movements because it is not invested in the market.
If you aren’t sure how your fund is working or you want it reviewed to see if you’ll have the retirement you want, seek financial advice.