It's important to know how super works.
Your super grows through contributions and investment earnings. Importantly, the investment strategies you use, the investment options you choose and the financial advice you receive also influence how much super you'll have when you retire.
The graph below shows the value of a First Super account invested in the default investment option (currently the Balanced investment option) from 1 July 1989 to 30 June 2011. It assumes the super account holder is earning average weekly ordinary time earnings (AWOTE), is receiving compulsory superannuation guarantee (SG) contributions monthly from their employer, and isn't making any additional contributions.
|Assumptions: Direct fees of $1.35 per week (higher than actual fees over the period) are deducted and credit ratings applied are for the default investment option. The Superannuation Guarantee started on 1 July 1992, reaching the current rate of 9% in 2002. Contributions before 1 July 1992 are 3% industrial award contributions.
Past investment performance isn't a reliable indicator of future investment performance, but this person could have grown their super faster by knowing more about how super grows. For example, understanding different investment options, ways to contribute more to super, allocated pension products, and where to go for financial planning advice.
Understanding investment earnings
Your First Super account earns investment income, which is paid into your account as a crediting rate. The crediting rate applied depends on the investment option, or options, you choose and how the investments perform. Of course, crediting rates can be negative or positive.
Investment options with more growth investments have the potential to offer higher returns, but are more likely to produce a negative return than First Super's more conservative investment options becuase they typically include higher risk investments.
Crediting rates are paid to your account based on the monthly performance of your investment option/s and your average daily account balance - the amount you have in your account. This means that the faster your contributions reach First Super, the more investment earnings you can generate. For example, you can grow your super faster by having contributions paid monthly instead of quarterly.
Investment earnings - positive or negative - while calculated monthly, are paid into your account on 30 June every year, or when you leave the fund, after investment tax, fees and costs are deducted.
If you leave First Super or withdraw part of your benefit between monthly crediting rate declarations, an interim crediting rate is applied to your entire account balance. The interim crediting rate reflects estimated investment earnings over the portion of the month before the withdrawal.
Take time to consider your investment options
Choosing the right investment option or options is an important part of growing your super. You need to choose an option or options that match your risk/return profile - the balance between the level of investment risk you are comfortable with and how much return you want from your investment.
Find out more about the First Super investment options.
Choose investment strategies that work for you
There are other strategies you can use to grow your super. An allocated pension, for example, could be an important part of growing your super because it pays tax free crediting rates.
Find out more about some investment strategies you might like to consider.
Make the most of flexible super contribution options
The more contributions you make to your super, the more investment earnings they can generate. In addition to the superannuation guarantee contributions paid by your employer, there are many ways to contribute to your super and some types of contributions carry substantial advantages. So make sure you're making the most of what's available, including:
Need more information?
Consider getting financial advice
First Super offers seminars at your workplace and financial planning advice for individual members. Call us on 1300 360 988 to arrange for a First Super Financial Planner to contact you.
Financial advisers can help you determine your risk profile and identify the return required to meet your financial goals. When seeking financial advice there are many factors to consider and we recommend you seek advice from a licensed professional adviser.
To find out more about the financial products and services that First Super can provide, download our Financial Services Guide to assist you in deciding whether to acquire any of these products or services.