Super funds for low-income earners

Do low-income earners need a super fund?

All eligible employees in Australia are guaranteed superannuation payments, regardless of how many hours you work or how much you earn. This includes full-time, part-time and casual employees, as well as those under 18 years of age who work over 30 hours per week.

If you’re self-employed then there’s no requirement to set up a superannuation account for yourself, but you might want to consider doing so as there are tax concessions on any contributions you make.

What to look for in a super fund if you’re a low-income earner

Low fees

Low cost super funds could help you maximise the amount of money you’ll have come retirement. Super funds typically charge a range of fees that can include (but are not limited to) anything from administration fees, to investment fees (also referred to as management expense ratios or MERs) and fees for changing your investment options. If you have income protection, life or Total and Permanent Disability (TPD) insurance through your super fund, you may pay a regular premium for these as well.

Check the Product Disclosure Statement (PDS) of any super fund you’re considering to see what fees it charges, as well as your super statement to see what your current fund is charging you in fees. Not sure what the figures mean on your statement? Call your super fund and ask them for more information.

Strong performance

A fund that delivers strong returns throughout your working life will also help your balance grow—but know that not all funds perform the same. Canstar’s superannuation comparison tables show the performance of a wide range of superannuation products in Australia, and are a good starting point for assessing a fund’s performance. The Australian Prudential Regulation Authority (APRA) also carries out an annual performance test and names the funds found to be underperforming.

Performance is usually given as a percentage which shows how much the fund delivers in investment returns each year. Even a fraction of a percentage point difference can have an impact on how much super you’ll have available when you decide to retire. It could even be the difference between a modest or a comfortable retirement.

But remember, the performance numbers you see only measure how a fund has performed in the past. Strong past performance does not necessarily indicate a fund will perform well in the future, so you need to consider how its performance has varied over time and could vary in the future.

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How to find the best super fund for low income earners?

The best super fund for a low income earner will ultimately depend on your needs and financial situation. Use Canstar’s superannuation comparison tables to compare your super fund options, including a product’s fees, one and five year investment performance and other features. Next, check out Canstar’s annual Superannuation Star Ratings and Awards. Our awards recognise the providers offering outstanding value to customers, taking into account a super funds’ investment performance, fees and product features across a range of ages and balances.

How can low-income earners boost their super balance?

If you’re worried about not having enough super in retirement, there are a few things you can do to potentially increase the rate at which your super balance grows year-on-year.

Salary sacrifice

If you can afford to, ask your employer to use part of your pre-tax pay to make a regular contribution into your super fund, on top of the mandatory contributions your employer makes. This is known as salary sacrificing or salary packaging, and the extra money paid into your fund is taxed at a lower rate of just 15%, provided you don’t exceed your concessional contributions cap. If you’re self-employed, any concessional (pre-tax) contributions you make to your super are tax-deductible.

Check for any eligible tax contributions

Find out via the Australian Taxation Office (ATO) to see if you’re eligible for any government contributions to your super, such as the low income super tax offset (LISTO) or a super co-contribution. If you supplied your Tax File Number to your super fund then these government contributions should apply automatically if you’re eligible, but it’s always useful to double-check.

Voluntary partner contributions

If you’re in a relationship (married or de facto) and your partner earns more than you, voluntary partner contributions can help grow your super balance by adding a little extra on top of regular savings. At the same time, the contributing partner may be able to claim a tax offset, making it a financial benefit for both parties.

Consolidate your super

If you’ve ever changed employers you may have more than one super fund in your name. It’s easy to check via MyGov if you have any other accounts. If you do, see if you can consolidate those funds into one to save on paying duplicate fees. But before doing so, make sure you check to see if you aren’t losing out on other features, such as life insurance, from any funds you’re about to leave.

Some of these options provided may have tax implications for you, so consider contacting the ATO or seeking professional tax advice if you would like more information.

What is an ‘inactive’ low-balance super account?

If you rarely contribute to your super account the ATO may deem it to be inactive. This is done to stop the balance from being eroded by fees. Generally speaking, an inactive low-balance super account is one where:

• No amount has been credited to the account with the last 16 months

• The account balance is less than $6,000

• There’s no insurance attached to the account

• You have not met a prescribed condition of release (e.g. you reach retirement age)

• The account is not a defined benefit account

• The account is not held in a self-managed super fund (SMSF) or small APRA fund.

If an account is found to be inactive, the ATO says that they will proactively consolidate it into an active super account on your behalf, otherwise it will hold the funds to avoid fees being charged on them. The funds will remain with the ATO until an active super account is found or until you meet a condition of release.

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