17 Feb How to Choose Your Super Fund
Most Australians accumulate superannuation directly from their employers. Because it seems mostly out of our hands, many of us don’t take the time to research exactly what our super funds offer. Take the time to understand how choosing the right super fund now can benefit you and ensure a financially rewarding retirement when it finally comes around. A significant life event including change of job, starting back in the workforce after studying or taking parental leave or a return to Australia can trigger people to change their super fund.
However, an alarmingly high number of people remain apathetic about switching — Roy Morgan research found in 2014 only 3.3 per cent of people bothered to change funds. But when it comes to either sticking with your fund or jumping ship, multiple factors should come into play including the long-term performance, fees charged and insurance costs.
The right super fund can significantly impact your retirement
Superannuation forms the primary source of investment and income for most retired Australians, so investing in the right fund is essential for a happy and secure retirement. Putting your money into the right super fund can be the difference between a comfortable retirement with freedom to travel and pursue your interests, or a post-career life with limited choices, perhaps reliant on outside sources for support.
In 2016, the Sydney Morning Herald reported that more Australians are working past the age of 70 amidst fears they won’t have enough saved up for retirement. We’re living longer, but that doesn’t mean we’re financially prepared for it.
Government assistance is also lessening. The age at which we can access the Age Pension has changed. If you were born before July 1952, you’re eligible for the Age Pension from 65 years. If you’re born after that, then your Age Pension access could be limited up to 67 years of age. with less government support on offer, having the right super fund is essential.
Check if you can choose your fund
Most people can choose the fund for their employer’s super contributions. However, some people who are covered by industrial agreements and members of defined benefit funds don’t have this choice.
Defined benefit funds are usually very advantageous so think very carefully and seek advice before you move out of one. To find out if you can choose a fund, check with your employer or see the Australian Taxation Office’s (ATO’s) information on choosing a super fund.
If you do have a choice, your employer will give you a ‘standard choice form’ when you start work. The form sets out your options for choosing a super fund. You can select your own or go with your employer’s fund.
Provide your tax file number when you join a super fund. This ensures you’re taxed at the special low rate and your super account is less likely to get lost.
Be wary of default funds
If you don’t nominate a super fund when you start a new job, then your employer will automatically pay your contribution into a default fund. As most of us work for several organizations over the course of our careers, it’s easy to see how our super sometimes ends up distributed across multiple sources. It’s better to be proactive with super and do your best to consolidate your super funds into one nominated fund.
Fortunately, the Australian government has made it relatively easy for you to track down your super. The Australian Securities and Investments Commission outlines the steps you can take for tracking down your lost super here.
That’s not to say that default funds are not always the best option, but having control over your super means the best practice is to always nominate a fund when you start a new job. By doing so, you not only ensure your superannuation is easy to track, you also know how the super fund will use your money.
Choosing the right fund
Finding the right super fund is like a happy marriage. You need to find a fund that benefits you over the long term, and can deliver the kind of wealth and security that will put you in good stead when you retire. There are several considerations involved when it comes to choosing the most appropriate super fund for your retirement:
How to compare super funds
There are a few key things to consider when comparing super funds. Spend some time looking at your choices.
Obviously the less fees the better. Funds with a recent track record of high performance may increase their fees as they grow more popular, which is why it is better to look at long term performance over at least five years and weigh it up against the fund’s fees.
This seems like a given, but it’s not uncommon for superannuation recipients to overlook this key metric. It’s easy to be swayed by short term benefits, compelling advertising and cheap fees, but a strong history of stable performance should be priority number 1 for selecting your super fund.
You or your employer may be able to contribute more than the standard 9.5% superannuation to your fund. Doing so may provide you with certain benefits such as a government co-contribution. For example, if you earn under $51,021 per year (before tax) and make after-tax super contributions, you are eligible to receive matching contributions from the government.
Part of your research into super fund should look at what sort of services they offer, such as web portal access, reporting, or other complementary financial services.
Markets can be volatile. See what kind of insurance the find offers and how much it will cost you. Weigh up the benefits against the performance of the fund.
Plan over the long term
Like many financial investments, long term performance is a better indication of success than temporary swings and short term negative returns. Solid performers with predictable growth patterns are what you are looking for. Aim for about five years’ worth of history. If there’s good growth there, you’re onto a winner. However you shouldn’t place absolute reliance on past performance and you have to be conscious past performance does not indicate future performance.
By the same token, top performing funds over the past 12 months might not offer the best value for your money. Choosing a fund with a good short term reputation might lead to increased fees, and is no indicator of future performance. Funds with gains over long term should offer better opportunities for your super growth.
Where to find information on different super funds
You should be able to find information on fees, investment options, benefits and performance in the following places:
- Product disclosure statement (PDS)
- Super fund’s website
- By calling the super fund
Make sure you are comparing apples with apples by paying attention to factors like how often the quoted fees will be charged on your account and the period the investment returns relate to. For example, a 5-year average return for the period ending 30 June may be different from a 5-year average return for the period ending 30 September.
When looking at investment returns, also make sure your comparison is based on the investment option you want to invest in. There’s no point comparing balanced investment options if you will choose a conservative or growth option.
Consider a Self-Managed Super Fund
Self-Managed Super Funds (SMSFs) give you more freedom over where to invest your superannuation. This comes with benefits and risks:
- Better choice of investment: Trustees in a SMSF can access direct shares, cash accounts, term deposits, high yield cash accounts, income investments, direct property, collectables and more.
- More flexibility: Trustees in a SMSF can adjust their contributions more freely.
- Better alignment with personal goals: Because SMSFs are managed by a small group of contributors, it is easy to align your own personal investment goals with that of the trust.
- Fees can be high: Particularly when the SMSF has only a single contributor. Consider adding several trustees to the SMSF to mitigate the expenses
- More ‘hands on’: Obviously running your own SMSF is going to require more effort and forethought.
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