Superannuation - An overview

Recently I started to look into my superannuation to see whether there was any way I could do things more effectively (from a fee, returns, administration and tax perspectives) and I thought I would blog about it as I went.  However I realised that many of the readers of this blog are from overseas and would not know how the superannuation system worked so this is a brief overview.

In Australia the government mandates that employers contribute a certain amount, currently 9% per annum of an employees wage towards a retirement account which cannot be touched until the employee gets to retirement.  This retirement account is not managed by the company but rather can be managed by the employee themselves (called 'self managed super funds') or by a superannuation fund manager (which are generally split into fee paying funds and industry superannuation funds which charge no fees).

There are quite complex rules around superannuation including

• What it can and cant be invested in
• What sort of leverage can be put into investments
• The tax treatement of the contributions made by the employer and any additions made by the employees themselves
• The age at which withdrawals can be and how they may be made

It is actually quite a complex topic which is why most Australians dont really think about it too much and just allow their employer to put the money away every month into these accounts.  This is actually a problem as most people have several accounts (I am in my mid 20s and I already have 3 superannuation accounts - each one set up by a different employer). 

The superannuation system is actually a brilliant one.  We have all read the statistics on how people do not save adequately for retirement and then government social security and pension systems are burdened and are in danger of going bust.  The superannuation system fixes all of this as a person working for ~40 years with forced savings of 9% of their wage for this whole period will not be a burden on the system at all (and it is compulsory for everyone).  There is also a knock on effect to the stock market.  As most superannuation funds only invest in Australia there is a huge pool of money which is constantly searching for a home and which has to be invested in the market which I think adds stability to the system.

This was just a brief overview of superannuation for those who were not familiar with the Australian system.  I will go into much more details in following posts