Whether you are in your first job after leaving school or only a few years from retirement, it pays to understand how superannuation works. By the time you are ready to retire, your superannuation could have grown to be one of the largest assets you will have in your life.

Superannuation is your investment in your future. So it is really important that you understand why you need it, what you're entitled to, how you can grow your superannuation and how you can best manage the money for your retirement.

What is superannuation?

Successive governments have built super up into one of the most tax-effective ways to save for retirement over the course of your working life.

It generally works like this:

  • Contributions are made to your super account. These could be from your employer, you, your spouse and/or the government.
  • Your superannuation fund invests the money on your behalf, according to the investment strategy you have chosen, or the default investment strategy if you have not made an investment choice.
  • Net returns (earnings) on your investment go into your super account
  • Earnings are also invested and earn even more returns with a potential to grow your balance
  • You only pay 15% contributions tax on before-tax super contributions*. After-tax super contributions are not taxed going into the superannuation fund
  • Earnings are taxed at 15% - this is tax effective for many people to encourage them to invest for their retirement
  • The money is typically held until you reach your 'preservation age' or retire. Once you reach your preservation age you can:
    • continue to hold your money in super, paying 15% tax on earnings and making withdrawals when it suits you^
    • withdraw some or all of your money as a lump sum^
    • use some or all of this money to start a pension account that pays you a regular income

*Or 30% tax on pre-tax super contributions if you earn over $300,000 pa.

^You may be taxed on your super withdrawal, depending on your age when you make the withdrawal.

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