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Don’t know how your super fund works? The compulsory superannuation (super) fund makes setting aside retirement money easy for Australians.
However, not everyone is aware of how super works, and why it’s important to review your super.
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This article is about making super funds work for you. It includes an in-depth discussion about the different types of super funds so you can choose the one that best suits your lifestyle.
This guide will cover frequently asked questions to help you prepare for a secure and comfortable retirement. Some of these questions include the costs of maintaining a super fund, and how much super you should set aside for your retirement.
The Importance of Super Fund Reviews
An employer contributes to the superannuation account of their employees’ choice; however, employees unfamiliar with how super funds work may not pick the right super for their financial situation and lifestyle.
Therefore, it is important to review the best super funds with the help of an experienced financial planner. To review your super, you should measure it against other financial options to see if it suits your lifestyle.
Before comparing super fund types, we will first cover the basics.
How Superannuation Works
According to the Australian Taxation Office, super refers to the funds set aside by employers over the course of their employees’ working lives, so they have money to live on once they retire.
A superannuation fund is worth it, as long as the employee continues working and making regular super contributions. This investment can grow until they retire or reach a certain age.
The compulsory contribution scheme complements the taxpayer-funded government age pension.
The Australian government requires employers to pay at least 9.5% of their employees’ ordinary time earnings into the super fund. This contribution, also known as the superannuation guarantee, is made on top of the employees’ yearly base salary.
If you are earning $100,000, you will also receive $9,500 in your super. When the money is placed in the super fund, superannuation companies like AustralianSuper, Aware Super, Sunsuper, and QSuper will then invest it.
Australian employees who meet the minimum requirements qualify for super. If they are working as a casual, full-time, or part-time employee, all Australians are required to be paid super.
Individuals using a tax file number (TFN), contractors, and temporary residents in Australia, such as those in Sydney, are eligible for super payments.
Why Super Reviews Matter
You may have a default super plan that does not take your unique circumstances into account. Therefore, a super review backed by financial planning or sound general advice is needed. This practice is helpful for these reasons:
You May Be Paying Sky-High Super Fees
Whether it’s administration fees, investment fees, or activity-based fees, you could be paying too much in superannuation fees. These expenses can affect your retirement savings over time.
These fees are taken out of your potential retirement income, so employees need to learn the difference between low-fee super funds and high-fee funds.
Your Super Funds May Not Be Performing
When it comes to superannuation, the investment returns the fund makes, known as its performance, matters. Employees who wish to benefit from a self-funded retirement should ensure their super fund has strong performance.
There is, however, significant variance in the performance of super funds. For this reason, you should make sure that your financial product is consistently top-performing.
Even a 1% difference in average super performance can significantly affect your retirement fund, as these returns can add up over several years.
Analyse your super fund’s investment success history. This means looking beyond the fund’s performance over the previous 12 months.
Reviewing your fund’s past performance is helpful if you want to get an overview of how your fund is faring. You can do this by checking what’s on your super statement. This statement also contains the super balance.
It is worth noting a best-performing fund’s past success may not be indicative of its future performance.
Investing in super funds that show average, but consistent returns annually, may be more worthwhile than funds that demonstrate excellent investment performance for one, two, or three years.
If your fund’s investment returns are lower than average in the span of at least five years, you may have to consider other super options.
The Super’s Insurance Coverage May Not Be Right for You
Most super funds already come with insurance and other financial services. In most cases, allocation is done automatically.
For many Australians, obtaining a super account means getting life insurance for the first time. Super products offer the following benefits for future retirees:
- Life or death cover – your beneficiaries receive an income stream or lump sum when you die or become terminally ill.
- Total and permanent disability (TPD) benefit – this allows you to get paid if you become severely disabled, rendering you unlikely to work again.
- Income protection insurance (also known as salary continuance cover) –this investment option ensures you are paid a regular income for a particular period.
The right financial adviser will advise you on the best insurance cover by basing it on how much you have and how much you need.
If your current insurance plan isn’t appropriate, your financial planner can help tailor your cover to your needs. The best financial planners will compare the different insurance options you may have.
When in doubt, seeking financial advice is your best option.
It is essential you seek help from credible financial advisers to devise an investment strategy. You should discuss processes and asset allocation to ensure that your investment portfolio balances the risks and rewards.
Before investing ensure that you understand all the disclaimers, product disclosure statements, and details indicated in a product’s fine print.
Before getting superannuation advice, ensure that your adviser has satisfied the Australian Securities and Investments Commission’s (ASIC) training standards. Ask if they have an Australian Financial Services License (AFSL).
How to Find the Best Super Fund
To find the best superannuation fund, you should understand the different types of super funds.
Learn More About the Super Fund Types
Retail Super Fund
Investment companies and banks run this fund type. Anyone with a TFN who is working in Australia qualifies for this type of super fund.
Private companies offer retail funds. These funds are not necessarily designed to profit members.
Industry Super Fund
There are different kinds of industry funds. While some are open to everyone, others are limited to particular fields of employment.
Unlike retail super funds, the industry super fund is usually smaller. This fund works with lower-cost models for its members.
Any profit made through the industry super fund benefits all the members.
Public Sector or Corporate Fund
Employers set up this fund for their current and former employees. An employer may choose a retail super or an industry super.
A public sector fund usually involves group insurance, which the employer negotiates for their employees.
Self-Managed Super Fund (SMSF)
This fund type is a private super fund, which individuals commit to managing themselves. Self-managed super funds allow up to four members to serve as trustees who are involved in the decision-making process.
The trustees are required to comply with the law. The primary advantage of SMSFs is that there are no membership fees. The requirements of the trustees are also minimal, such as having a TFN and ABN (Australian business number).
The costs, however, are shouldered by the trustees alone. These expenses include investing, accounting, auditing, and administration fees.
Check Your Options
Beyond the default MySuper product, you should also look at other possible super choices. Different companies offer superannuation, with some of them focusing on select sectors of society.
For instance, CareSuper caters to individuals in professional, managerial, administrative, and service occupations.
Meanwhile, UniSuper offers services to Australia’s higher education and research industry.
Hostplus services Australians in the hospitality, tourism, recreation and sports industry.
Other superannuation companies focus on the members, such as the profit-to-member fund VicSuper.
Some super companies also consider other factors. For example, AustralianSuper and Australian Ethical offer an ESG integration strategy.
ESG refers to environmental, social, and governance factors.
Whichever fund you choose, ensure that it is regulated by the Australian Prudential Regulation Authority (APRA).
No single super fund in Australia is the best. It is up to you to find one with features that align with your current financial situation and future financial goals.
Excellent super funds have the following qualities:
- Various insurance options
- Low fees
- An investment strategy appropriate for your goals, personal values, and risk tolerance
- A history of excellent long-term returns
Low fee super funds may depend on your account balance. Super fees are typically charged as a percentage of your balance.
In some cases, super funds may charge flat fees that may be set at different levels based on your balance.
The higher your balance, the more fees you have to pay. Some payments also depend on your fund’s performance.
Combine Multiple Super Funds
Some working individuals who have changed jobs have more than one super account, meaning they are paying two sets of annual fees or more.
When you consolidate your super into a single account you save money by paying only one set of fees. When you only have one account, there’s less paperwork, and it is easier to keep track of your super balance.
Here are some reasons why employees change super funds:
- They want to invest in a super fund that offers more competitive features and services than their existing fund
- They want to leave a fund that has been consistently performing poorly
- They have left their job and also want to leave a corporate fund
You should carefully assess if a change of funds is in order. Do not switch accounts just because your fund is performing poorly after one year. Funds should be evaluated by their performance over the past five years or more.
You should also be wary of chasing top-performing funds. If a fund has performed well after one year, that’s not enough reason to change to that super fund. Check the potential super’s success history, as it may not perform well in the future.
Super funds cannot charge individuals who choose to move their entire fund, or even parts of it, to a different account. Laws banning exit fees have been implemented in Australia since July 2019.
It is relatively easy to change super funds. You must fill out a rollover form from your MyGov account or your chosen super fund. Proof of identity is required.
Before changing funds, make sure to do the following:
- Review your employer’s contributions – how much an employer contributes to your account may vary. Check how a change in funds could potentially affect the contributions you will be receiving.
- Compare insurance cover – several funds offer different insurance benefits and premiums. Before switching to another fund, ensure you are satisfied with your new super account’s insurance coverage. Some companies offer income protection insurance, life insurance, and total and permanent disability benefits.
- Inform your employer – let your employer know that you plan to change your super fund. They should be aware if you want to start a new super fund, or wish to consolidate funds into an existing single account. Provide the necessary information so they can start paying into your chosen super.
How much money you need from your super to retire comfortably all depends on your financial goals.
According to the ASFA (Association of Superannuation Funds of Australia), a comfortable retirement means a retiree can enjoy different leisurely and recreational activities. They can also make reasonable purchases like a car, clothes, electronics, and even domestic and international holidays.
A secure and comfortable retirement depends on whether you can make your superannuation fund work for you. It all begins with paying close attention to your super.
Need help reviewing your super? Request a call from our experts today!
The more we do to maximise and grow your super today, the more financial freedom you’ll have in years to come find out how a financial planner or adviser can help you with this and more
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