Picking a superannuation fund is hard work, especially when there are so many products, choices and modern day options available. Then there are the constant superannuation legislation changes, which can leave you wondering whether it’s even worth contributing to a superannuation fund as a reliable investment vehicle.
Some factors to consider when comparing super funds:
- Choice of investments: Diversification can help you manage the investment risk associated with your superannuation.
- Potential investment performance: Each investment option will suit different investors, and the return and value of an investment option can go up and down over time.
- Fees: Fees between each super fund will vary, and this may partly affect your final retirement savings.
- The reputation and business strength of the fund provider and the service you will receive are very important.
Insurance in superannuation
Insurance in Super is just as important to consider. The question is whether holding insurance in superannuation will be appropriate for your circumstances as many times; the fund may not be able to release benefits if a claim is made due to the regulatory requirements of the superannuation legislation. It’s important to make sure you do not lose any current insurance benefits by changing super funds. You should also compare insurance premiums in different superannuation funds as they can vary.
Deciding on the best superannuation fund
Look at a range of superannuation funds available to you. Consider the fund’s investment options, insurance offering, fee information, service offering, website and performance history, although you should bear in mind that past performance is no indication of future performance.
Check that you can get the life insurance cover you need just as cost-effectively and easily in the new superannuation fund. This is something you should look into carefully, as you may not be eligible for the same insurance benefit if you opt out of your current superannuation fund, and then back into the same fund later on.
Lastly, the government offers tax and other incentives to encourage people to make voluntary superannuation contributions. As superannuation is an “investment vehicle” rather than an asset class itself, the tax benefits of investing in assets via a superannuation structure effectively increase the net after-tax returns for many individuals with a marginal tax rate above the 15% rate for superannuation funds.
The different types of super funds
There are many types of superannuation funds which can be classified according to their legal effect, tax effect and the kind of benefits they provide.
1. Self Managed Superannuation Funds
As a starting point, the first in the types of superannuation funds are called “do-it-yourself” funds. Do-it-yourself funds are also called self-managed superannuation funds, or an SMSF. But is managing your own super fund something you should be considering?
With an SMSF, you set up a fund where you are the trustee and, therefore, are responsible for all investment and compliance decisions. An SMSF can have 4 members or less, so it’s possible to set up a fund to cover your whole family. However, before jumping in you need to understand all the issues:
- As a general rule, it’s not worth doing if you have less than $200,000 in superannuation.
- The administration and record keeping is onerous, extensive and rigorously followed up by the ATO. But you can get assistance from professional administration providers.
- The trustees are legally liable, and there can be heavy penalties if you get it wrong.
2. Master Trust Superannuation Funds
Master Trust funds are types of superannuation funds that feature two variations: Retail master trusts or Wholesale master trusts. Retail master trusts may also be called wrap platforms. Both retail and wholesale master trusts may be managed by banks.
3. Industry Superannuation Funds
Another type of superannuation fund is the industry super funds. In industry funds, there are groups or associations of business owners who manage the funds. Shareholders are absent in this type of fund, so only members benefit in the end.
4. Public Sector Employees Superannuation Funds
Fourth in the types of superannuation funds is public sector employees funds. Here, only government employees are covered by the contributions. It is also the government that runs this superannuation fund.
5. Employer Stand-Alone Superannuation Funds
Finally, employer stand-alone funds are types of superannuation funds wherein company owners manage the fund on behalf of their employees. The conditions in employer stand-alone funds vary from one employer to another.
Why is Superannuation so Important?
You might think of superannuation as just 9% of your salary that you can’t access. But it’s important to remember that it is your money, it’s just being held for you until you retire. The main idea behind superannuation is to help you build a nest egg which you then use to create an income in retirement (or semi-retirement).
4 Reasons to include superannuation in your financial planning
- The Age Pension may not be enough for a comfortable retirement ($14,915 pa for a single person from 20 March 2009)
- You may spend over twenty years in retirement and your money will need to last
- Because superannuation enjoys the benefits of compound interest and a long investment timeframe, it could be your largest asset by the time you retire
- The government is offering attractive tax incentives.
It might be worth comparing Superannuation funds before deciding on the most suitable one for your particular situation.