How Super Works

How super works

Facilitator's guide July 2015

of 20 How super works

Facilitator's guide This facilitator's guide has information to help you successfully deliver the presentation on how super works. The presentation is for Human Resources (HR) managers (or similar) who want to provide their staff with a snapshot of how super works. It will take approximately 40 minutes.

Participants Encourage people to attend by explaining that the presentation will provide them with the information they need to understand the basics about superannuation. Ideally there should be no more than 12 participants – that way you can provide personalised training and engage with each participant. The information in this presentation is general. However you can tailor some aspects of the presentation by finding out some details about your participants that will help you create relevant examples and case studies to show during the presentation, as well as giving you an idea of what figures to input when showing how ASIC's MoneySmart calculators and tools work. These details include age, family status, income levels, cultural background and work experience.

Preparation As the facilitator you should prepare for your presentation by: . Downloading the presentation for free at www.moneysmart.gov.au. Go to 'Tools & resources' then 'Information for...' and then 'Workplaces'. . Familiarise yourself with ASIC's MoneySmart website, in particular the following webpages: o How super works o Choosing a super fund o Super contributions o Super investment options o Super fees o Insurance through super o Calculators and apps. . Go through the facilitator's notes in the presentation and make notes about what content to emphasise and what to exclude, based on your participants. You may find it helpful to print out the facilitator's notes and use them during your presentation. . Identify some key terms that you may need to define during the presentation. See the glossary on ASIC's MoneySmart website to get an idea of what terms might be relevant, and their definitions.

Presentation logistics . Create a one-page summary or agenda for participants and distribute it beforehand. . Create a timeline for your presentation and stick to it. Do not run over time and allow plenty of time for discussion. . Make sure you have an appropriately sized room and test any technology you are using (e.g. data projector).

of 20 . If you don't have access to a computer and/or data projector you can use the PowerPoint presentation as your own notes for a technology-free presentation, referring to a whiteboard etc. . Consider providing water and food to keep your participants comfortable. . Provide pens and paper for participants to take their own notes. . If possible, have internet access for your presentation so you can navigate through ASIC's MoneySmart website and use the calculators and tools. If you can't get internet access, email any links referred to in the presentation to participants after giving the presentation, or provide links from your intranet.

Find out about your organisation It is strongly recommended that you meet with someone in the area of your organisation that handles superannuation before the presentation. Take the time to learn your internal policies. You may want to co- facilitate the presentation with someone who can answer technical questions about your organisation. At the very minimum, you should know: . your organisation's default super fund; . who staff should contact with queries about super, both internally and at the super fund; and . any internal policies that will affect people's super decisions.

Hand out our booklet Order copies of ASIC's free booklet Super Decisions by calling the ASIC Infoline on 1300 300 630 or you can download a copy or order them online at www.moneysmart.gov.au. Providing each participant with a booklet allows them to follow along as you present, and can be a useful reference for them later on.

Use this facilitator's guide This guide will help you deliver the presentation to your participants. For each slide we have provided notes to give you background information, links to content on ASIC's MoneySmart website and some suggested wording to get you started. We recommended that you add to this basic content when presenting and think carefully about who you are presenting to before determining exactly what you will say for each slide. You can, of course, also use the information from the notes as part of your presentation.

About this resource Running a lunchtime workshop or team information session on superannuation is a great way to inform your staff. And what's good for your people is good for your business. These resources are not to be used for commercial gain. They cannot be changed in any way and must be attributed to ASIC at all times. Facilitators must agree not to give personal financial advice nor to promote or recommend any financial product when delivering this presentation. Information contained within this facilitator's guide and the presentation is accurate at the time of publication. Copyright Australian Securities and Investments Commission, July 2015.

of 20 Slide 1

Notes Before starting your presentation: . Introduce yourself and any other speakers. . Introduce the topic. . Thank the participants for coming and for showing an interest in finding out how to make the most of their super. . Encourage the participants to ask questions along the way. . Inform them of any logistical or 'housekeeping' matters (e.g. where the nearest toilets and fire escapes are located).

of 20 Slide 2

Notes Inform the participants that this presentation will cover the essential things they need to know about superannuation, or ‘super’.

Suggested wording . We will start by explaining what exactly super is and why it is important for your future, as well as the things you need to consider when you are choosing a super fund. . Then we will look at how contributions from us [your employer], and hopefully from you too can grow over time. . We will also focus on the investment decisions you can make within your super fund. . To finish off, we will discuss the fees you will be charged and how you can get life insurance cover through your super fund. . At the end of the presentation, I’ll give you links to some useful information and interactive calculators on ASIC's MoneySmart website so you can go away and work out how you are tracking with your super.

of 20 Slide 3

Notes At this point in the presentation, it will be helpful to identify what documents the participants should be receiving from you and from their super fund. Ideally, hold up physical examples and explain how regularly they should receive each one. For more information go to http://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works.

Suggested wording . Whatever your age, now is the time to start making the most of your super. [If you have a young group you can mention the benefit of having time on their side to really grow their super. If you have an older group let them know how this is important as they get closer to retiring.] . Contributions come from your employer. This is called the ‘super guarantee’ and it's the law that your employer must make these contributions. . You can also top up your super by making your own contributions. . Over the course of your working life, these contributions from your employer(s) add up, or 'accumulate'. Your super money is also invested by your super fund, so it grows over time. When you retire, you will have money to live off - a nest egg.

of 20 Slide 4

Notes Check if your organisation has any rules about the choice of super fund. If your organisation has a limited choice or incentives for choosing a particular super fund then you may consider skipping this slide. Things to compare and what to look out for: . Extra benefits - Your employer may pay more than 9.50% for certain super funds or if you make extra contributions yourself. [Check if your organisation offers any incentives like this.] . Fees - The lower the fees the better. Also, look out for exit fees, especially if you’re changing from one fund to another. [If you have time, you can use the superannuation calculator to show the effect of fees by comparing two funds with the same inputs, but with a 1% difference in fees.] . Investment options - Make sure there are options that suit your needs. For example, can you choose between a range of investment options, from high risk and return to low risk and return? [This is discussed in more detail on slides 10 and 11.] . Performance - Pick a fund that has performed well over the last 5 years. Do not chase last year's best performer, because super is a lifetime investment and even the best investors can not consistently pick the best funds. . Insurance - See what cover is available and what it will cost. Life insurance offered through super funds is often easy to manage and cheap. [This is discussed in more detail on slide 13.] . Good customer service - Call the fund or browse their website to see what other services they offer. For more information go to http://www.moneysmart.gov.au/superannuation-and-retirement/how-super- works/choosing-a-super-fund.

Suggested wording There are a few things you need to know when choosing a super fund. Do your research and ask around before you commit yourself. Pick the right fund and it can really make a difference to your end benefit.

of 20 Slide 5

Notes Ordinary time earnings are what employees earn for their ordinary hours of work, including over-award payments, bonuses, commissions, allowances and certain paid leave. See the Australian Taxation Office's information on using ordinary time earnings to calculate the super guarantee. For more information on contributing extra to super go to http://www.moneysmart.gov.au/superannuation-and- retirement/how-super-works/super-contributions/contributing-extra-to-super.

Suggested wording By law, we [your employer] must make super contributions into your super account. The contributions are based on 9.50% of your 'ordinary time earnings'. For example, if your ordinary time earnings are $50,000, then you should be paid an additional $4,750 in super. Making extra super contributions is a great way to boost your nest egg. There are two ways to contribute extra to super. You can build your super by making 'after-tax' contributions from your own money or by salary sacrificing. [See slides 6 to 8.]

of 20 Slide 6

Notes There are limits to how much you can contribute to your super before you have to pay tax. This is $30,000 per year for most people. See the Australian Taxation Office's information on super contributions - too much super can mean extra tax. For more information go to http://www.moneysmart.gov.au/superannuation-and-retirement/how-super- works/super-contributions/contributing-extra-to-super.

Suggested wording Also known as 'non-concessional contributions', after-tax contributions are the simplest way to add to your super. You simply deposit your personal money into your super account. If you can spare the money, you can really boost your super savings by making contributions from your after- tax income. You will usually save more by investing through super than by investing in the same assets outside super. Contributions from your after-tax income don't get taxed when your fund receives them because you have already paid tax.

of 20 Slide 7

Notes If you earn less than $50,454 per year (before tax) and make after-tax super contributions, you are eligible to receive matching contributions from the government. This is called the government co-contribution. If you earn less than $35,454, the government will match your contribution for 50% of the contribution, up to $1,000. So if you put in $1,000, the government will put in another $500 for you. The amount of the co- contribution reduces the more you earn, phasing out at $50,454. For more information go to http://www.moneysmart.gov.au/superannuation-and-retirement/how-super- works/super-contributions/contributing-extra-to-super.

Suggested wording If you get a bonus [only mention this if your organisation provides bonuses] or just have some spare money in your savings account one month, consider putting it into your super fund. To receive the co-contribution you will need to lodge a tax return for the year. The government will then work out how much you are entitled to. Assuming you're eligible, the government will pay the co-contribution directly into your fund.

of 20 Slide 8

Notes By 'sacrificing' some of your pre-tax salary and putting it into your super fund, you get taxed at the special rate of 15%. That's why it's also known as 'concessional contributions' because there are tax concessions that come with these types of contributions. This suits higher income earners. If you earn more than $37,000, salary sacrifice can be a good way to grow your super. For more information go to http://www.moneysmart.gov.au/superannuation-and-retirement/how-super- works/super-contributions/contributing-extra-to-super.

Suggested wording You've probably heard someone talking about 'salary sacrifice' at your family barbeque. But what does it actually mean? Salary sacrificing is when you and your employer agree to redirect a portion of your pay as a contribution to super.

of 20 Slide 9

Notes For more information go to http://www.moneysmart.gov.au/superannuation-and-retirement/how-super- works/super-contributions/contributing-extra-to-super.

Suggested wording Let's take a moment to look at an example of how salary sacrificing works. In this example, Crystal earns $90,000 before tax, excluding her employer's super contribution. If Crystal decides to redirect $10,000 of her (before tax) pay into salary sacrifice super contributions, she will save $2,400 in tax, with the money going into her super fund instead of her pocket. This happens because the $10,000 she redirects gets taxed at the special rate of 15% for super contributions, instead of her marginal tax rate. The difference in tax is where she sees the benefit.

of 20 Slide 10

Notes Most investment options within super fall into one of these four broad categories: Growth - Invests around 85% in shares or property. Aims for higher average returns over the long term. This means higher losses in bad years than those you would experience with lower risk options. Balanced - Invests around 70% in shares or property, and the rest in fixed interest and cash. Aims for reasonable returns, but less than growth funds, reducing the risk of loss in bad years. Those losses usually occur less frequently than in the growth option. Conservative - Invests around 30% in shares and property with the majority in fixed interest and cash. Aims to reduce the risk of loss and therefore accepts a lower return over the long term. There is less chance of having a bad year than in the balanced or growth options. Cash - Invests 100% in deposits with Australian deposit-taking institutions. Your capital accumulates earnings and is highly unlikely to reduce by losses on investments. For more information go to http://www.moneysmart.gov.au/superannuation-and-retirement/how-super- works/super-investment-options.

Suggested wording Here are examples of some typical investment options offered by super funds. Be careful and always read the details of the investment option you’re looking at because each fund offers slightly different options and uses slightly different labels for these options. Super funds invest your money to grow your nest egg over your working life. Most super funds let you choose from a range of investment options. The difference between investment options is mainly how much investment risk you are willing to take on.

of 20 Slide 11

Notes You can find out about the different investment options on your fund's website and by calling their general phone line. For more detailed information, see the fund's product disclosure statement. This explains the: . Strategy behind each investment option . Investment returns it aims for . Risks involved Your fund will also have a ready-made investment option for people who don't choose, which is sometimes called the 'default investment option'. A higher risk strategy may deliver higher returns, but there is a risk of loss in bad years. Over 30 to 40 years, it's likely that any growth strategy will lose money in at least 4 to 6 of those years. However, there are likely to be more ups than downs. Historically, over any 20-year period, a growth or balanced strategy gives better returns than more conservative investment options. You must decide if the likely rewards are worth the risk. However, if you’re close to retirement, you may prefer the safety of a conservative investment option to secure your money and insure yourself against a bad year. For more information go to http://www.moneysmart.gov.au/superannuation-and-retirement/how-super- works/super-investment-options.

Suggested wording Most people work for 30 to 40 years and live for another 25 to 30 years after retiring. You want your super to grow and to keep pace with inflation during this time. For this reason, a growth or balanced strategy may suit a long-term investor who won't be spending their super for more than 10 years.

of 20 Slide 12

Notes There are many different types of fees associated with your super fund. Fees are typically deducted from your account at the end of each month or when an action is taken. Super fees can be either a dollar amount or a percentage. The only way to know if you're paying high fees is to find out what your super fund is charging you, and comparing the cost to other similar funds. For more information go to http://www.moneysmart.gov.au/superannuation-and-retirement/how-super- works/super-fees.

Suggested wording Super funds charge you fees for the services they provide. All funds charge fees, but some charge less than others. Generally, a super fund with low fees will build your savings faster.

of 20 Slide 13

Notes Super funds typically offer three types of life insurance to members: . Life cover - your beneficiaries receive a benefit if you die. . Total and permanent disability cover - you receive a benefit if you become seriously disabled and are unlikely to ever work again. . Income protection - you receive an income stream for a specified period if you can't work due to temporary disability or illness. There are benefits in getting life insurance through super: . It's cheap because super funds purchase insurance policies in bulk. . There may be a tax advantage because the premiums are paid from your super account. . It's easy to manage because premiums are automatically deducted. . Some funds automatically accept you for cover without requiring a health check. You also need to be aware that the level of cover may be limited and if you move to a different super fund or the contributions stop, your cover may end without notice. You may choose to top up with an insurance policy outside super to get as much cover as you want. You can also make salary sacrifice contributions to cover the extra cost of insurance through super. For more information go to http://www.moneysmart.gov.au/superannuation-and-retirement/how-super- works/insurance-through-super.

Suggested wording Many super funds provide life and disability cover. This is an easy way to get some basic insurance cover. Having insurance for accidents and illness can provide a sense of security for you and your family.

of 20 Slide 14

Notes Get ASIC's MoneySmart website up on screen if you can. Show the participants the superannuation information on your intranet if you have it, or direct them to the website of your default super fund. Provide the contact details of the main person or department in your organisation that handles superannuation enquiries.

of 20 Slide 15

Notes Provide your participants with these links so they can access them while at work. If you have time, go through the calculators during the presentation, using an example that is relevant to your participants. For example if you have a group of young people show them how much their super will grow if they choose a 'growth' option in a low-fee fund compared to a 'conservative' option in a high-fee fund, using the superannuation calculator. Or if you have an older group use the retirement planner to show how making a few changes during their last few years in the workforce will make a big difference to their retirement income. Use the action checklist at the end of the retirement planner to show what can be done.

of 20 Slide 16

Notes This is a chance for people to ask questions. If no-one comes forward with questions, prompt them by asking them questions about their own super and whether they plan to make any changes, or go to www.moneysmart.gov.au to get more information. Thank your participants for attending. Remind them of all the contact details for relevant people in your organisation and at your default super fund. Let them know that you will be emailing them a copy of the presentation and that they can find more information at www.moneysmart.gov.au.