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*Past performance data is for the period ending December 2018.
How do I choose a super fund?
The best super fund is the one that has all the benefits and features you want, and invests your money in a cost-effective way. It should also leave you feeling comfortable in the knowledge that you will receive a healthy sum in retirement. An SMSF might be best for some people, while others might want to use an industry or corporate super fund, nominate a retail fund or just stick with a default MySuper.
When comparing different super fund options alongside one another, you might want to consider:
- Investment options and historical performance
- The fees
- The insurance options
- Any other benefits
Let’s take a look at these features in more detail.
Investment options and historical performance
Managed super funds (which are almost all funds other than SMSFs) have professionals who invest members’ money on their behalf. Historical performance, typically expressed as a percentage, is generally a measure of the return on investment previous members have earned. You’ll mostly want to look at the fund’s performance for the last five years, and can generally discard anything older than that.
However, historical performance isn’t everything. Most super funds will remind you that “past performance is not an indication of future performance” and some people may also want to sacrifice a bit of average performance for:
- Options available. Some people might just prefer the range of investment options offered by one super fund over another, such as being able to pick their investments by industry rather than life stage.
- How much control you have. Some people might want a managed super fund that still lets them do some of their own investing. Others might be particularly keen on the forex market, share trading, property or other investment types, and want a super fund that lets them put their money where they want it most.
- Ethical investing. Some people would prefer their savings to be invested ethically, such as renewable energy rather than coal mining, and medical supplies rather than weapons manufacturers. Many people are looking towards ethical investment super funds.
As with most fees generally, the lower the better. Consider:
- Whether they’re worth it. You might come out ahead paying more fees for better investment returns, or it might not be worth it.
- When they apply: Different types of investment might result in different fees, while some super funds might charge additional fees for certain services (such as if you need advice) where others don’t.
- Exactly how much you’re paying: Superannuation fees can be extremely confusing. Ideally you’ll want to understand exactly how much you’re paying in fees. If you aren’t sure, you may want to contact a super fund directly for some help piecing it all together.
Once you know how much you can expect to pay in fees, you can balance it next to the benefits to determine the advantages.
The insurance options
Most super funds offer insurance policies within your account, which are often slightly discounted. Generally, you can only find superannuation insurance to pay out in the event of:
- Death (life insurance)
- Total and permanent disability (TPD insurance)
- Temporary inability to work (income protection insurance)
To compare the insurance cover offered by two different super funds you may want to look at:
- The types of cover: Do they both offer life, TPD and income protection insurance, or does one of them offer fewer cover types? Do they even offer any insurance at all?
- The payout: How much is paid out for each of the three cover types?
- The premiums: How much is it costing you?
- Is it automatic: Some providers offer younger members insurance on an opt-in basis, meaning they can add it if they’d like but don’t automatically receive it when opening the account.
All three insurance types can be found through super funds, or outside of superannuation instead. However, they work a bit differently in each case. In very basic terms, you might think of super insurance as the cheap “no-brand” option, and insurance outside of super as the “deluxe brand name” option. Depending on your situation, you might want to have it all inside super, all of it outside super, or a combination of both.
Any other benefits
Some supers might have additional benefits. For example, a corporate super fund might come with a contribution-matching deal, where your company pays extra into your super fund based on how much extra you voluntarily contribute. Or, an industry super fund might offer a range of industry-specific training for members, or a retail fund might include the chance to attend investment seminars.
You can find a different range of extra benefits depending on your situation, and it may be well worth considering them.
Key features of super funds
Super funds are designed to provide you with a tax effective means of saving towards your retirement years. They are also a way to ensure less retirees rely on the aged pension. Your super account is funded in a number of different ways and means, with the money being paid into the account being called a contribution or guarantee.
There are a number of different means through which money or contributions can be made to your super fund, and this includes:
- Money that is paid in by you: As long as you meet the eligibility criteria you will be able to make contributions to your super fund from pre-tax or post-tax dollars. It is also possible to transfer cash in other super funds although these are not strictly known as contributions as they are already part of a super fund.
- Money that is paid in by your employer: The law is that employers have to pay 9.5% of employees' annual salaries into their super funds, which is known as the superannuation guarantee. However, currently, if you earn less than $450 a month your employer doesn't have to pay you this superannuation guarantee.
- Money that is paid in by your partner: If you are aged under seventy, contributions can also be made into your super fund by your spouse.
- Money paid in by the government: Subject to eligibility, the government may add to your super fund under its co-contribution scheme based on after-tax personal contributions made by you and within specified limits. This is to encourage people to make contributions to their super fund.
There are a number of investment choices available when it comes to your super fund and you can choose how your fund is invested, with options such as property, shares, cash and fixed interest products such as bonds. One thing to bear in mind is that the reason why super funds are such a tax effective way to save towards your retirement is that super is taxed at rates much lower than the marginal tax rate, which is known as a concessional rate.
Steps for choosing a super fund
- Get enough information about a super fund. It is fundamental to know all the options available for you. Getting sufficient information about the superannuation fund can help you make knowledgeable choices on which super fund is best for your specific needs. You can find wide information available in the internet with many websites offering expert and professional advice regarding superannuation. Look for online sites that offer impartial reviews to help you compare superannuation features and benefits.
- Look at the investment performance. One way to choose the appropriate super fund is to consider the investment performance. However, you need to take this approach cautiously as although it may seem to appear as a reliable indicator of future performance, it can be a trap to give you unreliable indicator with reference to a fund’s investment performance. It comes highly recommended to consider the comprehensive or diversified balance portfolio before selecting the fund which suits your needs. It is also wise to compare superannuation fund performance for over many years rather than just one or two. One way to get good performing fund is to look at the funds that the experts use. These super funds are most favoured even by several other superannuation consultancies.
- Get more value from your investment. Another consideration you should look into when searching for a super fund is the fees involved. You should know the charges and fees when selecting a fund. Higher fees can mean more services and features of superannuation fund available to you. Take a careful look on the features and benefits corresponding to each fee and determine whether you really need all of them otherwise you may forego some so you will be charged at a lower rate.
- Choose competitive insurance. When looking for a superannuation fund, you need to find one which is competitively priced. Settle for a super fund that gives you other featured benefits such for death, permanent disablement and income protection. With these, you can reduce your outright expenses since premiums are deducted from your super account.
- Seek advice from the experts if necessary. For you to choose the right super fund, you may seek advice from a financial adviser to help you design a strategy that you are comfortable with. Most super fund packages have financial planning advice integrated into their fees while others offer it for free. So if you only need simple investment, you can do away with paying extra for financial advice.
- Accessibility of the super fund. Super fund is a form of investment and as an investor you want to keep track of your money placement. When you compare superannuation, make sure to look into the accessibility of the fund to monitor the progress of your investment.
When am I eligible to start a super fund?
At most, employers usually pay an amount equal to the minimum 9% of your income to your super fund. These contributions made before taxes are referred to as the Superannuation Guarantee.
However, there are certain conditions under which contributions to the Superfund Guarantee are not necessary. If you are one of the following, the terms and conditions apply to you.
- You have a monthly income of $450 or less every month.
- You are under 18 with a 30-hour or less work week.
- You are over 70 years old.
- You are engaged in domestic or private work for 30 hours or less every week.
Those who can freely choose a super fund must not be involved in any agreement or award. If involved in an agreement, the contract does not need superannuation fund support. You are eligible to choose your superannuation if fund is being paid through notional agreement preserving state award.
What types of super funds are there?
There are various types of super funds which can be put under two different categories – profit for member funds and retail superannuation funds. Although there are still debates going on which category is better, understanding them is much better since their advantages and disadvantages are relative to the needs that you have. Compare the different types of super funds available using our table below.
|Super fund type||Description|
|MySuper||Under Australian law, most employers are required to offer a MySuper-type fund as a default option for people who cannot (or don’t wish to) select their own fund. These are generally found as defaults, but you may also nominate a MySuper fund. It’s designed to be a safe option for most Australians, and is characterised by:|
|Retail funds||Widely-available commercial products, operated by financial institutions to turn a profit for themselves and their customers. These will typically be nominated, rather than selected as a default.|
Retail funds can vary widely, but are often characterised by:
|Industry funds||These superannuation funds are generally designed for workers in a specific industry, and may be especially beneficial. Some industry funds are restricted to workers in a specific industry, while others are open to everyone.|
Industry super funds will often be available as a default, or might be nominated. Sometimes a super fund will be both an industry fund, as well as a MySuper fund. The key difference between these funds and retail funds is that they are owned by members not shareholders.
They can vary widely, but are often characterised by:
|Corporate funds||These are super funds a business offers to its employees. They might be exceptionally competitive, such as in the case of defined benefit funds. Naturally these will typically be found as default funds with various advantages and features.|
|Self-managed super fund (SMSF)||The do-it-yourself super fund. You are responsible for investing your superannuation, as well as looking after the tax and legal obligations that go along with it. These are explained in more detail in this guide.|
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