In this post, we're going to discuss some of the key points to consider when choosing the right super fund for you.
So read on…
If you're currently employed or about to join the workforce, your employer will normally make regular contributions to your super fund. But the choice of super fund you have is usually up to you.
The main choices are typical:
Self Managed Super Fund
When looking into these super funds, people look at past investment returns. But there are other important factors to think about. Past performance doesn't necessarily guarantee future performance.
In other words, the super fund that generated higher returns yesterday may not generate higher returns tomorrow. Instead, you might want to consider the tips that we have laid out for you in this post.
Firstly, check the fees of each super fund. How do one fund's fees compare to another?
Secondly, check what investment options are offered in each super fund. Your circumstances will influence which investment option you choose and when.
Consider the features and benefits your super fund provides such as insurance within super. If you are changing jobs, look at what your new employer offers through their default super fund. If your preference is to stay within your existing super fund, you just need to tell your employer that you want your future super contributions to go to that account.
Here's more information about Self-Managed Super Funds in our Knowledge Base for you: SMSFs Guide
Is the super fund your type?
There are various superannuation funds to select from, and you can always take your time in choosing one that best fits your needs. Don't just choose the first option you see.
There are numerous super funds, and each one has its distinctive feature. Familiarize yourself with the various types and narrow down your search to the ones you like. Superannuation funds are grouped into categories and their features can be distinguished based on the category they fall under.
Self-Managed Superannuation Funds
The Distinction between Defined and Accumulation Benefit Funds
A lot of superannuation funds provide a new kind of account in the form of MySuper. This account took the place of commonly used default accounts provided by the superannuation funds themselves.
If you do not find to time to select your superannuation fund, there's a chance your employer will be paying more employer contributions towards the MySuper account.
A MySuper account will provide you with:
MySuper becomes available only for the accumulation of funds and is not applicable to defined benefit funds that don't work to accounts within the pension stage. Industry, corporate and retail funds all provide MySuper accounts. You can check out MySuper's site for more information.
The bigger industry superannuation funds welcome anyone who would like to join although there are some who limit their openings to employees within a certain industry. The major features of this fund include the following:
Their major objective is not to gain profits, so the profits are sent back towards the fund to be enjoyed by the members.
Public Sector Funding
Funding in the public sector was designed for the employees in the different departments of the State and Federal government. The majority of them are only provided to government personnel. The major features include:
Corporate funding is set by the employer solely for the employees.
A number of the bigger corporate funds work with employers that also handle the fund with a board of trustees assigned by employees and employer. The other corporate funds can also be incorporated as a big industry or retail superannuation (especially when it comes to small or medium-sized employers).
Features of such funds include the following:
Funds managed by employers or industries will give all profits back to their members while the ones managed by retailers will get some of the profits.
Those managed by a larger fund may offer a wider range of investment options
They are usually low to middle-costing funds for big-time employers but may be costly to the small employers.
Some older corporate funds contain defined benefit members while the majority of others have accumulation fund members.
Legitimate Rollover Funding
An eligible rollover fund or ERF is an account that holds for inactive members or lost members with reduced account balances. These funds cannot receive employer contributions. And just like regular super funds, a few ERFs have reduced investment returns and could charge high payments, while others have low charges and good returns.
A few ERF providers will attempt to locate your active superannuation fund as your cash is likely to grow increase quicker if you consolidate the ERF with the active super fund.
The Difference between Defined Benefit and Accumulation Funds
Many Australians have their super in an accumulation fund. They're called "accumulation" funds as your money accumulates or increases over time. Your super's value varies according to:
Your preferred investment option
Investment profits are included in your account; investment losses are removed. More importantly, in accumulation funds, you carry the risk that your superannuation pay-out will be reduced if financial markets fall.
Defined Benefit Funds
Compared to accumulation funds, defined benefit funds are not so common. The majority of defined benefit funds are public sector or corporate funds, and loads are currently closed to new members. Your retirement benefit's value is defined by the rules and varies according to:
Get expert advice if you are thinking about changing your defined benefit funds to accumulation funds. And once you leave, you cannot get back in. Frequently defined benefit funds are a much better choice.
Significantly, in defined benefit funds, the fund or your employer usually takes on the risk. But know that market recessions can alter a defined benefit fund, and a few funds or employers may have issues taking the risk.
If you are considering changing funds, then begin by determining where you stand now. Various kinds of funds have various drawbacks and features. Knowing the kind of superannuation fund you are in will aid you to make an informed decision regarding your super savings.
How To Select A Superannuation Fund
In July 2005, regulation came into effect to allow numerous Australian employees to choose actively the super fund into which their SG (super contributions) would be paid. While the decision of super fund initiative provided workers with the power, the choice of a fund turned out to be very difficult with an enormous number of products, counting both industry and retail funds, competing for consumer investment dollars.
How To Select?
There are loads of super funds – as well as thousands of super investment choices – to pick from. A proactive decision early in your career has the likelihood to enhance your superannuation nest egg significantly. A few imperative questions to ask yourself when picking a superannuation fund include:
Administration and super fund management payments can vary widely from one fund to another as well as from investment choice to investment choice. While a further 0.50% of charges may not appear very much when an account balance is low, that extra charge margin can amount to a high dollar value as the account balance increases.
Does the super fund have a good choice of investment options? Super is just a tax structure under the ATO guidelines. It's the principal investments that you prefer to hold under that structure that'll determine your investment's performance.
Those investments may range from cash, property, bonds, Australian shares or even international shares, or maybe a mix of these asset classes. Seek expert super advice on the type of asset classes would match your situation, and guarantee that you prefer super fund has something proper.
Does The Super Fund Have A Decent Long-Standing Track Record?
Super is a tax structure made with the intention of aiding Australians to save for their superannuation?
Being long-term investments, performance is a very imperative factor that you have to think about when selecting a super fund. Minute performance differences can make an enormous difference to your superannuation nest egg. Also, slight differences in charges can make a great difference though, so it is vital to think about both about each other.
Moreover, it is worth examining the performance of investments when you are considering your superannuation options. While previous performance isn't an assurance of future performance, a decent long-term return will increase your superannuation nest egg as well as even a percent difference can amount to loads of cash by retirement.
What insurance selections does the super fund offer? When it comes to personal coverage, the Financial Services Council has formerly estimated that around 95% of Australian employees are underinsured.
Numerous super funds provide a level of personal coverage, and the insurance premiums can be extremely cost-effective for a few workers. The kinds of insurance that could be included in a super fund are:
Superannuation funds can group these policies under what's known as "group life insurance."
Other services are abundant and offer that could be vital to you. Create a checklist of those services and inquire your fund whether or not they provide them.
Remember that your super is your money. Exploring your options and picking a fund to match your needs is simply worth the effort.
Here's more information on things to consider when choosing a Super Fund: 20 Things to Think About To Choose the Right Fund For Your Needs
Choosing Your Perfect Match
Choosing a superannuation fund is a little like dating. Pick the proper fund, and you will be prepared for a long, comfortable and happy life once you retire. Deciding on the wrong one and you are in for loads of pain and hassles. Here is how to select the best superannuation fund for you.
Check if you can select your fund
The majority of people can pick the fund for the super contributions of their employer. But a few people who are defined benefit fund members and covered by industrial agreements do not have this choice.
Defined benefit funds are frequently very beneficial so think wisely and seek advice before making a move.
To know if you can pick a fund, ask your employer or check out the ATO's (Australian Taxation Office's) information on selecting a super fund.
If you can choose, your employer will provide you with a "standard choice form" when you commence work. The form displays your options for picking a super fund. You can choose your own or go along with your employer's super fund.
Provide your TFN (tax file number) when you enter a super fund. This guarantees that you are taxed at a special low rate, and your account will be less likely to be reported as lost.
How to compare superannuation funds
There are some important things to think about when comparing superannuation funds. Spend some time assessing your choices.
Browse their site or call the fund to check out what other services they provide.
Where to find info on different superannuation funds
You must be able to find info on fees, investment options, performance, and benefits in the following places:
By calling the super fund
Make certain you're comparing apples to apples by considering factors such as how frequently the quoted payments will be charged and the investment return period relate to.
For instance, a five-year average return for a period ending June 30 could be different from an average of five years return for a period ending September 30.
When assessing investment returns, also ensure your comparison is rooted in your preferred investment option. There is no point in comparing balanced investment alternatives if you'll pick a growth or conservative option.
Lease Your Business Premises from Your Super Fund
This is a story that a friend of mine who was a financial advisor shared with me once.
A client of his came to him and said the person was paying a $21,204 rent on a warehouse. A business that pays rent is rather common, but what this guy and lots of others do not know is that they're able to buy a property in their super fund and then lease it to the business they run.
Thus, your landlord is efficiently yourself, making further personal wealth. With the unpredictable share market, many individuals would prefer their super in bricks and mortar, because in many people's opinion, it's a more reliable investment.
We chose to take a more profound look and established the property value to be approximately $350K, and his super account balance (along with his wife) is around $170,000. This would signify that the super fund would have to borrow approximately $200,000 to purchase the property.
Under strict terms, a super fund is permitted to borrow, but I will not bore you with these details. We can discuss this later. I've assumed an interest rate of 8%, in a case of the borrowing cost increases, with payments spanning twenty-five years.
To borrow $200K, the monthly costs would be $1,543 monthly or $18,516 annually. Still, the business would have to pay the rent to the fund. Let's say $21,204; the business would be in the same position they were.
As a general wealth position, the client is better off, because this $21,204 is currently being paid to the superannuation fund, instead of a third party. If the fund paid $21,204 straight to the loan, then the loan would be paid back in around 20 years.
As years pass by, rental costs will grow, which means the loan should be paid back even quicker than that.
This is a perfect way to utilize your super fund to increase your wealth without affecting you're business or personal cash flow. Note that if you operate a business and have extra cash, you can pay it straight to the fund to pay back the loan even quicker.
The advantage is that you'll gain a tax deduction for those excess contributions.
If you own the property yourself or in a family fund, further payments against your loan wouldn't bring you tax benefit as you're paying off capital. However, making those contributions to settle it early in the superannuation fund will leave your business in a much better tax position.
Here's what you can do about superannuation and tax, refer to Fast and Comprehensive Guide to Superannuation and Tax
Lost Members and Wound up Super Funds
Reporting lost members of super funds
All superannuation providers - including superannuation funds, retirement savings accounts, eligible rollover funds, as well as approved deposit funds - should report lost members to the ATO (Australian Tax Office).
The ATO has a list of individuals who have been registered as lost on the Lost Members Register.
A lost member is a super fund member who:
A member can be excluded permanently from becoming a lost fund member if they:
Do funds have to report "transferred," "found," and "deleted" members?
Yes. You should report details of "found" members - i.e., members formerly reported lost who have been located since.
You should report "transferred" members as well - i.e., formerly reported lost members whose accounts were moved out of the fund to an authorized rollover fund or another fund through a successor fund transfer, or moved to the ATO or State Government.
You should report "deleted" members as well - i.e., members formerly reported as lost who shouldn't have been reported because they weren't lost.
Moreover, you should report if you do not have lost members or status changes of formerly reported members, i.e., in this case, funds should provide a non-lodgement report.
Consolidating your Super
Finally, let us not forget to consolidate your super. That is, bringing all your super accounts into one. With every fund you have, you're paying an extra set of fees. There may also be exit and withdrawal fees involved.
If you do consolidate your super or decide to transfer from one super to another, make sure your employer can contribute to the new super fund. Also, you can go to our site, fill our applications form so that we can do the whole process for you.
Disclaimer: All information on this website is of a general nature only. We have not taken into account your financial situation, needs or objectives. You need to make up your own mind and ascertain yourself if it is right for you. We recommend you read the product disclosure statement(s) and the financial services guide before making any financial decision.