Super in young adulthood: why it matters

With life expectancy on the rise, many of us will spend more than a quarter of our life retired. Ed Marshall from our Member Education team explains the benefits of engaging with your super when you're young to ensure it delivers in retirement.

23 Sep 2021

For many young Australians, superannuation has been low on the priority list - considered a concept and system too complex, too distant, and somewhat out of their control to warrant worrying about until nearing retirement.
To the contrary, superannuation is something that should be engaged with at all stages of a person’s life so it can support their individual retirement ambitions and safeguard their financial futures. For younger Australians, with most of their working lives ahead, knowing where and how your super is invested – and proactively engaging with it throughout your career – will deliver in spades in retirement.

The age of super engagement

Reforms to superannuation that are designed to enhance transparency around fund performance and save customers money continue at pace throughout 2021.

As part of the reforms, recent changes including the introduction of an online comparison tool and the identification of underperforming funds are helping to improve transparency and demystify perceived complexities around super, while strengthening protections around Australians’ retirement savings. Aiding this has been a concerted effort from superannuation funds to further educate their customers about super - presenting an opportune time for younger Australians to improve their engagement.

For younger Australians, the benefits that can be realised through more active engagement with super include stronger returns on your super balance, minimising fees paid on potential duplicate accounts, and more control over how your super balance is invested – with the ultimate reward being a larger nest egg in retirement.

Reassuringly, the tides appear to be turning when it comes to younger Australians’ engagement with their super, owing largely to recent developments - most notably the Government’s early release of super scheme introduced in April, 2020.

By being given access to their superannuation, many younger Australians felt a stronger sense of ownership toward their super savings and a stronger inclination to consider their options and assess how their savings were being used.

Around the same time, many funds began unpacking how COVID-19 was impacting their members’ super, improving peoples’ awareness and familiarity with concepts such as short-term market volatility, investment risk, and compound interest.

Recent reforms have maintained this momentum in super engagement, with the super industry at the centre of ongoing political discussion and buoyed by public debate and opinion – information and insights that can be harnessed by younger Australians to improve their financial literacy and confidence when it comes to managing their super.

Where to start

Acquainting yourself with the concept of compound interest is a great place to start when it comes to engaging with your super, and is key to understanding the benefits of the super system and the importance of growing your balance.

Compound interest happens when you earn interest on both the money you’ve saved and the interest earned on that balance. It effectively multiplies your money and demonstrates the value of investing in your super early and consistently.

To illustrate how compound interest works, according to the moneysmart.gov.au compound interest calculator, a single $2,600 investment, growing at 7% annually, becomes $5225 after 10 years, $10,501 after 20 years, $21,103 after 30 years, and then doubles again to $42,410 after 40 years. And if you keep adding to that initial investment – which is exactly what super does – that final amount continues to get bigger and bigger.

Beyond the Super Guarantee – the contributions your employer is required to make into your super fund – here are a number of ways to go about boosting your super to take better advantage of compound interest.

Consolidating your super

This involves moving all your super into one account to avoid paying fees and premiums on multiple accounts. From November 1 this year, a new reform called “stapling” will come into effect which attaches a customer to their existing super fund when they start a new job, unless they explicitly choose to switch to another provider. Stapling is designed to reduce the number of duplicate superannuation accounts that may have been opened with each new job.

Personal super contributions

These are additional payments made to your super fund from your after-tax income, with how much you’re able to contribute dependent on your fund, your age, and your total super balance. As non-concessional contributions, these payments come from income that has already been taxed and will not be taxed again once received by your super fund.

Salary sacrificed super contributions

This involves forgoing a specified part of your salary to have it paid into your super fund by your employer. These payments are in addition to Super Guarantee contributions but as concessional contributions (contributions made into your fund before tax), they are taxed at a rate of 15% in your super fund, which is generally lower than your marginal tax rate.

Assessing your investment options

Super funds provide different investment options for members such as Growth or Aggressive, Balanced, Conservative or Income-focused, and Cash portfolios, which impact where your money is invested and the returns on your super. It’s important to review your investment options to ensure they reflect factors like your risk comfort level, your life stage, and when you’re likely to access your super.

Public sector employment

Government employees or public sector workers typically enjoy a number of super benefits including lower fees and higher super guarantee contributions from their employers. For CSC customers in our PSSap fund, most employees receive a 15.4% employer contribution rate, or 16.4% if you’re in our ADF Super fund – both well above the 10% industry standard.

Seeking financial advice from a licensed professional is always strongly advised to ensure any options considered take your personal circumstances and needs into account.

No time like the present

The greatest advantage younger Australians have when it comes to their superannuation is time. With most of their working lives ahead of them, there is considerable opportunity to contribute to and multiply their super savings many times over, thanks to the power of compound interest.

With ongoing efforts from Government and industry designed to improve transparency and help members navigate the system, now is a great time to take a closer look at your super to ensure it’s working for you.

Ed Marshall, Member Ed

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Ed Marshall is from our Member Education team. To learn more about your super, from contributing and investing through retirement options, consider attending one of our online super sessions.

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