World’s ‘best’ super – but we don’t know how it works
Do you know the Super Guarantee rate or super’s low tax rates? If ‘no’, then you’re not alone. But ignorance about your biggest asset could be costing you.
Most of us believe superannuation is important to our future financial wellbeing – but our understanding of how super works to grow our retirement savings remains surprisingly low.
According to a Pyxis Polling survey, seven in 10 Australians don’t know the Super Guarantee rate and 75% cannot nominate super’s low tax rate. One third of us check our super balance less than once a year.
The power of compounding returns to grow savings inside super is also not widely understood, either. Compounding is the process whereby interest is credited to an existing principal amount as well as to interest paid, magnifying returns over time.
Life goes on, and we generally trust super fund managers to look after our interests, which for many workers in the accumulation phase of super saving is something to worry about closer to retirement.
However, it’s been found that people who feel they understand super are more likely to be engaged with their savings, be happier with their financial decisions, and strongly support the super system.
The survey of 1,030 people (in July) found:
Satisfaction with their super fund’s performance is highest among those who say they understand super, with 57% saying they are in a good performing fund.
Nearly 90% with a good understanding of super say it makes them feel more confident about their finances, compared to 60% of those who say they have an average or below average understanding of how super works.
While 29% rate their understanding of super as an eight or more out of ten, most Australians say they have a moderate understanding, with 53% giving ratings between five and seven.
A peak body of member-based super funds, Super Members Council, wants more Australians to understand and engage with their super and have launched the “How Super Works” campaign to explain the powerful benefits of super.
The campaign aims to demystify super and put more Australians in the best position to maximise it.
“Nearly three-quarters of workers today weren’t in the workforce when super was legislated 32 years ago – so it is timely to help more Australians understand how this system works for them – and why it is the envy of the world,” Super Members Council CEO Misha Schubert said.
“The more you know about super, and the more engaged you are with your super, the better you can make super work for you.
“Because super works automatically to help people build lifetime savings to deliver them income in retirement, it can be out of sight and out of mind for many, especially for younger people.”
The Pyxis Polling and Insights survey found:
Approximately one in three Australians correctly nominate the current Super Guarantee rate of 11.5%, with just under half (48%) within 0.5% of the correct answer.
Four in 10 people say they don’t know how super is taxed, and only a quarter can nominate that super contributions are taxed lightly at a rate of 15%.
Only four in 10 Australians know that retirement balances are usually mostly made up of compound returns from investments – and not the contributions made into our super. The longer you leave your savings alone, the faster and bigger they grow.
And two in 10 Australians incorrectly believe that having any money in super at retirement makes you ineligible for the age pension.
The survey found people who knew the answers to these questions are more engaged with their super and most likely to be happy with their funds’ investment performance.
Information about How Your Super Works and answers to your super questions are available here.
Related reading: SMCAustralia, How Super Works
