Starting your first job? It’s time to think about retirement

Australia’s youngest workers are starting to build gold mines – but there’s a strong chance they don’t even realise it.

At the same time as Baby Boomers and Generation Xers focus on how to get the most out of their super savings, Gen Z and Millennial workers are only just starting to add to the nation’s $3.9 trillion in retirement funds.

Gen Alpha workers starting jobs for the first time will have to start thinking about their superannuation.Credit: Aresna Villanueva

This year, the oldest members of Generation Alpha – born between 2010 and 2024 – will turn 14 and start entering the workforce. Over the next few years, more members of this group of digital natives will be able to get their first jobs and get exposure to super savings too.

However, the superannuation landscape they’ll enter looks very different to that of their parents and grandparents. For one, many of these super savers have investment horizons upwards of 45 years.

Superannuation stapling rules that came into effect in 2021 mean most working Australians will have one fund follow them for the long term.

But while getting an early handle on retirement savings can pay big dividends down the line, advisers and regulators see a looming disconnect between these young super savers and their funds.

Earlier this month, the Australian Securities and Investments Commission (ASIC) called on the superannuation industry to do more to engage Millennial clients after research from the commission’s MoneySmart division revealed 48 per cent of this age group admitted they didn’t know how to maximise their super.

Over the coming weeks, Money will be looking at how each generation can address that knowledge gap and make their super work harder for them.

Founder of Millennial-focused financial advice business Wealthy Self, David Currie, says most clients who walk through his door have a “fairly low” understanding of how their super works.

“Most people either don’t have the time to look at it themselves or they just don’t want to,” he says.

Despite the knowledge gap, experts say that getting the basics of super down doesn’t take a lot and will help prepare younger workers to regularly check in with their savings progress for years to come.

“Many young people don’t understand that it’s actually their money, and they can invest it wherever they want to these days – that hasn’t always been the case,” Currie says.

The first job trigger

Under Australia’s superannuation guarantee scheme, employers must pay super contributions of 11.5 per cent on their workers’ ordinary time earnings. This is compulsory for all workers over 18, and those aged under 18 when they work 30 or more hours per week.

Professor of finance in the business school at the University of Sydney, Susan Thorp, says the most basic problem for workers aged under 20 is awareness about whether they’re entitled to super payments and if they’re actually getting paid.

But she says the moment a teenager gets their first job is the best time for families to sit down and talk about how the system works.

“That will be a concrete, material and consequential moment for understanding what the responsibilities of employees are and what the responsibilities of the super funds are,” she says.

Wealthy Self founder David Currie.

Thorp says that in the Australian system, employers are not generally responsible for educating their employees about how superannuation works. It’s up to an employee to check where their savings are going.

“Clearly for a teenager this is particularly challenging – but worth paying attention to. Those small amounts of money, because they are being paid at such an early stage of someone’s life, accumulate to quite large amounts of money over 40 or more years of work,” she says.

The good news is that there are some simple checks that workers in their teens and twenties can do to get familiar with their funds. This includes getting across who your fund is with and logging in to check you are getting paid superannuation if it’s listed on your payslip or if you know you’re entitled to it.

“It’s very common in casual and part-time employment to find out that there are employers who are not paying it – rates of underpayment of superannuation in certain industries are remarkably high,” Thorp says.

Currie says as soon as an Australian starts earning a wage, it’s worth starting to familiarise yourself with super funds.

“As soon as you’ve got a job, as soon as you’re starting to earn your own money, it’s a good time to start working out how to use that money.”

A time to think about values

Not only do younger superannuation clients have decades to grow their super balances, but they also have more ways to invest their money for the long term, Currie says.

Compared with a decade ago, there is a range of niche superannuation funds and investment settings that give you more freedom to invest in line with your values.

“If you feel like you don’t have a vote or a say in the world because you’re a young person - you can vote with your money,” he says.

As super savers become more familiar with how the system works, they also have a chance to start thinking about where they would like their funds to be invested for the long term – for example, whether they want to choose an ethical fund or focus on a specific type of asset.

“Even if their super balances are small, they can invest into where they want the future to be,” Currie says.

This is the first part of our six-week Gen Super series, which takes an in-depth look at what to do with your superannuation at each age, from Gen Alphas just starting in their first jobs to Baby Boomers, who are just starting to retire – and beyond.

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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This story was created in partnership with Colonial First State. The content is independent of any influence by the commercial partner.