The truth about super
Truth be told, despite superannuation being an important part of almost every Australians’ plans for life after they retire, not many people like to think about it. This most probably goes double (or triple) for you, seeing as you may well not have entered the full-time workforce as yet.
Why then should a university student be concerned with learning about superannuation? I’m glad you asked! How about I start my response in the manner of all well-written secondary school and tertiary level essay - by defining terms.
What is superannuation?
Like it or not, when you enter the workforce, as an adult and are paid $450 or more in a calendar month. Your employer, by law, must take 9.5 per cent of your annual salary and place it into a superannuation account set up by your chosen super fund. It’s like a bank account, but one that you cannot make a withdrawal from until you are . . . wait for it . . . at least 60 years of age. (There are a few exceptions to this rule, such as new laws which allow people to access part of their super to buy their first home, but overwhelmingly, superannuation is a long-term investment.)
It is understandable that being unable to immediately access money you have earned is an unappealing concept for many people when they first start working. However, the sole purpose of superannuation is to help people save for retirement, and no-one gets close to the end of their working career and wishes they had less money in their super account. What looked possibly unfair and irritating in your 20s suddenly seems like a brilliant idea when retirement beckons and you find you might just have the funds you need to support your post-work wish-list of adventures.
Super alone is not the retirement silver bullet. You will also need to have savings and possibly property and other investments, but a sizeable super balance will go a long way to ensuring you enjoy the retirement you hope to have.
Them's the tax breaks
As a way of softening the blow of being unable to access part of your pay until retirement, and as a way of increasing the value of your super balance over time, superannuation accounts benefit from a range of favourable and unique tax advantages. These tax advantages apply at different stages of the lifespan of your super account.
For example, if you decide to make voluntary additional contributions to your super on top of the amount your employer contributes from your salary, you receive favourable tax treatment. Similarly, there are tax advantages when you begin to access your super later in life. There are also tax advantages attached to the compound interest you earn on your super account on the way through.
The wonders of compound interest
For those who are wondering, the Australian Securities & Investments Commission (ASIC) MoneySmart website defines compound interest as “interest paid on the initial principal [sum of money] as well as the accumulated interest on money you have borrowed or invested. Compound interest is like double chocolate topping for your savings. You earn interest on the money you deposit, and on the interest you have already earned - so you earn interest on interest.” [1]
Most readers of this article will have a superannuation account for something in the vicinity of 40+ years. For all this time, your super balance will benefit from the power of compound interest, all the while attracting super’s unique tax benefits.
Super fund studs and duds
For many people, the super fund they choose to join will constitute one of the biggest financial decisions they make in their life. For that reason, it’s really important to choose the right super fund. If you do not nominate a particular super fund to join when you begin work, your employer will choose one on your behalf (although you can change your super fund at any time).
Now, there’s no way of sugar-coating the fact that while some super funds have deservedly excellent reputations in terms of service, the fees they charge and the returns they earn for your super contributions, other funds have equally deserved poor reputations. Speaking of reputation, the legal profession, which you are considering joining, has a deserved and proud reputation for high standards, high expectations, integrity, ethics and an eye-for-detail.
It is in this rigorous and demanding environment that legalsuper has thrived as the industry superannuation fund for Australia’s legal community.
legalsuper, which holds assets of over $3.5 billion on behalf of its more than 44,000 members, knows the legal sector and the needs of those who work in it, whether they are law students, graduates, barristers, employee solicitors or the managing partners of small, medium or large law firms.
[1] Australian Securities and Investment Commission, 4 December 2018, https://www.moneysmart.gov.au/managing-your-money/saving/compound-interest
This information is of a general nature and does not take into account your specific needs. You should consider your own financial position, objectives and requirements and read the legalsuper Product Disclosure Statement (PDS) before making any decision in relation to legalsuper. The PDS can be obtained at legalsuper.com.au. Past performance is not necessarily an indicator of future performance. Issued by Legal Super Pty Ltd ABN 37 004 455 789 AFSL 246315 as the Trustee for legalsuper ABN 60 346 078 879
Mick Paskos is the Director of ONmessage media, which provides expert media and public relations, crisis management, publishing, writing and editing services, predominantly in the legal sector. His former roles include editor of the Law Institute Journal and managing editor of the Law Institute of Victoria Publications Department from 1998 to 2013.
