There are a lot of regulations and rules surrounding superannuation (also known as super) so many people find it difficult to understand, but the concept of super itself is easy.

How does super work?

Superannuation is simply a system of saving money to use when you retire.

In basic terms, super is like a bank account in your name but you can’t access that money unless you meet certain rules.

Most working Australians have money added to their super by their employer each month. This money is invested so it earns compound interest until you withdraw it.

Once you reach retirement, you can then take all your super as a lump sum or access it as regular payments (called a pension.) The rules on how you can take your super change periodically so this may be different by the time you retire.

What is super for?

Think about your pay – does it last longer than the pay period, or are you struggling to find money just before your next pay? Given that, how much money do you think you will have left in your bank account the day you stop working?

It is commonly believed that generation X and Y will not be able to access an old age pension, or at least, not a pension large enough to live comfortably on.

Super is therefore meant to fill in the gap between your regular savings and the pension (or lack thereof). Especially when you consider that increased life expectancies means we’ll probably spend more years in retirement, too.

How does my super grow?

Currently, employers must make super contributions for most workers earning more than $450 a week. The amount contributed must be at least 9% of your wages/salary but this amount is not taken from your pay.

You can also make contributions yourself, either via your employer or directly to the super fund. There are various forms of contributions you can make, with different financial incentives from the government for each contribution type.

What does ‘Choice of Fund’ mean?

Since July 2005, most employees have a choice as to where their super is invested. So, unless you are covered by certain federal awards, you can tell your employer to make your compulsory contributions to any registered super fund in Australia.

Every time you start a new job, your employer must ask you for your choice of fund within 28 days of you starting work. If you don’t want to choose, your employer can make contributions to the super fund they have set as their default super fund for employees.

Although the basics of superannuation are the same, each fund (and each product within a fund) offers different fees, features and advantages. These details are outlined in documents called Product Disclosure Statements (PDSs) so that you can compare funds and products.

Given the array of super products to choose from, it is probably easiest to determine your needs before looking at any funds. That way, you won’t waste time looking at funds and products that don’t meet your minimum requirements.

Some of the key factors you may want to consider in making a choice are:

• Fees and other costs
• Investment returns of previous years
• Level of investment choice
• Insurance policies offered, including their premiums
• Accessibility of your data (e.g. website access, regular communications, call centre hours)
• Ease of entry to the fund
• Eligibility rules (e.g. not all funds will accept the self-employed or under 18s)