Understanding an Australian Superannuation Fund and Its Benefits

A superannuation fund is a type of pension plan that is paid through an employer in Australia. It's a legal requirement for most companies to pay into this fund and it offers a number of benefits for employees. If you're not sure of how a superannuation fund works or why it's beneficial for you, note a few factors about the plan. Remember that you can also research how the plan works through the Australian government or ask your employer to explain its details to you.

1. How it works

Your employer pays into the superannuation fund and this fund is then reserved for retirement while it continues to grow. Your employer must pay a certain percentage of your income into the fund; this is required by law. This amount they pay into the fund is called the Super Guarantee.

2. How it grows

You as the employee can top off the funds that are put into the superfund; this can allow it to grow even faster over time. The fund is also invested so it may earn interest over time. 

The fund can also be grown by contributions made by the government. This is a provision made for low-income and median-income workers. In 2014, the maximum amount contributed by the government for any superfund was $500 and the minimum was $20. You need to make personal contributions to the superfund to be eligible for government matching, unless you qualify for a "low income super contribution." In this case you don't need to make contributions yourself to be eligible for this government contribution. This low income provision is for those who earn less than $37,000 per year.

Your superfund account holder will tell you how to make your own personal contributions to the fund. You can typically transfer funds from your bank account or have them directly debited or taken from your salary automatically. 

3. Taxes

Co-contributions made to your superfund are not considered as income and not taxed along with your income. Earnings on the superfund from investment interest are taxed, however.

4. Benefits

One benefit of this superannuation fund is that the government can match your own contributions without that amount they pay being considered as income. This can help your superfund grow quickly, as this means more money available when you access the fund at retirement and more money you can use to invest now. The taxes paid on the investment interest and other earnings are also typically much lower than the taxes you would pay on similar earnings.