Superannuation: The Ultimate Super Guide
Superannuation is generally the foundation of your retirement nest egg, so getting it ‘right’ is critical.
But what looks ‘right’ for a professional couple in their early 30s might look very different from what suits a busy, time-poor family, or a semi-retired couple in their 60s.
And your super options are broad: Do you want to manage your own super fund, or are you comfortable entrusting a large provider to do this for you? Should you top up your super contributions with your own cash, or let it look after itself? Are you planning to access a portion of your super early, or hold on to it as long as you can?
Our Ultimate Super Guide will help you navigate the path towards a superannuation solution that’s right for you.
Compiled with the combined knowledge and experience of eight financial planners from the MBA Financial Strategists team – and coupled with the latest industry standards – our Ultimate Super Guide will get you on the road to a financially healthy retirement.
Understanding your super
Superannuation is a tax-effective way to save for your retirement. It works in a similar way to a managed fund, where your money is grouped with other members’ money and invested on your behalf by professional investment managers. They do this based on your objectives, risk profile, and age. Generally, you can’t access your super until you reach your ‘preservation age’ (see the table below). Some exceptions do apply to this rule, such as life-threatening illness.
| Your date of birth | Age you can access your super (Preservation age) |
|---|---|
| Before 1 July 1960 | 55 |
| 1 July 1960 – 30 June 1961 | 56 |
| 1 July 1961 – 30 June 1962 | 57 |
| 1 July 1962 – 30 June 1963 | 58 |
| 1 July 1963 – 30 June 1964 | 59 |
| From 1 July 1964 | 60 |
Source: MoneySmart
Your employer makes compulsory super contributions to your super fund. These contributions are termed the ‘superannuation guarantee’ and currently sit at a minimum of 9.5% of your salary. On top of this contribution, you can make your own contributions – either via salary sacrifice (which is a concessional pre-tax contribution), or non-concessional (after-tax) contributions. The Federal Government’s co-contribution is an example of a non-concessional contribution. Be aware, however, that there are limits, or ‘caps,’ on the additional contributions you can make to your super fund in a financial year – and going over these caps can have significant financial consequences. These limits vary depending on your age.
Every person and every situation is different, so you’ll need to consider your own circumstances before making any decisions. And remember, the concessional caps include your 9.5% superannuation guarantee and any salary sacrifice payments.
Is my super right for me?
This is a question our financial planners at MBA Financial Strategists hear all the time.
The answer is not simple and depends very much on your own personal circumstances.
We recommend you take into account the following considerations when determining what ‘your’ super will look like:
- Your own personal goals – what you are hoping to achieve with your super fund and in what timeframe?
- Your age and family responsibilities.
- How comfortable are you to see your super balance fluctuate with changes in the stock market?
- Fees and performance associated with your super choice.
If you’re unsure which super fund to choose, or want to consider your wider retirement options, we recommend you seek independent financial advice.
Am I paying an acceptable level of fees on my super?
Again, this a very common question received by the financial planners in our practice. And again, the answer is dependent on your own personal situation.
There are a couple of key super fee types:
Administration fee
This is a flat fee charged by a super fund to administer your fund. The fee covers the basic cost of overseeing the fund – including maintenance of the software that allows you to access your fund details online, emails and printed communications about your fund.
Investment fee
Sometimes referred to as a management fee, this is generally a percentage-based fee. The fee is deducted from the assets of the particular investment options your super is invested in. As a general rule the higher the risk profile of the specific fund you’re in, the higher the fee.
Exit fee
This is a fee that may apply to your fund if you withdraw your monies and direct them to another fund. It is generally deducted directly from your account when you make a full (or sometimes partial) withdrawal from your account.
Adviser fees
Adviser fees cover financial advice provided to you by your financial adviser. The fee is agreed on upfront before any fees are deducted. Before deciding whether the fee sounds fair, ask yourself some key questions:
- How frequently do you wish to be contacted by your financial planner?
- How much time do you wish to spend with your financial planner on an annual basis?
- How complex is your portfolio – do you have direct shares or a managed fund?
Should I consolidate my super?
The benefits of having the one super account are clear:
- Super monies are located in the one place, therefore less time is consumed managing your account
- You’re not paying duplicate fees
- Reduced paperwork
However, superannuation is a complex area and there are key considerations you need to take into account when deciding whether to consolidate or not. These include:
- How to choose the most suitable super fund for your needs. Do you want to work with a financial adviser to determine this, or are you comfortable doing your own assessment using a super comparison website?
- Exit fees – check out to see if there are any exit fees attached to the funds you are consolidating.
- Insurance – be aware of the insurance connected to all your accounts and consider your own appropriate level of insurance.
- Employer considerations – make sure you inform your employer of the details of your new fund.
- A defined benefit scheme (seek advice before moving from these schemes).
What is the best way to structure my insurance?
Most super funds have an insurance component attached. An important consideration with your super fund is how to structure your insurance.
Generally, the insurance component will include Life insurance and/or Temporary and Permanent Disablement (TPD). Make sure you are informed about how much insurance is attached to your super, the sums insured and the fees involved.
What happens to my super when I die?
A very important feature of super is that it does not automatically form part of your estate if you pass away. Instead, your super benefits are paid out under the rules of the super fund.
This is why it is very important to ensure that you have nominated a beneficiary to your super via a Death Benefit Nomination form. You can access this form from your super provider.
You then need to consider do you want this nomination to be either:
- A binding nomination – the super fund must pay the benefit to the nominated beneficiary.
- A non-binding nomination – provides the super fund trustee with guidance as to who is paid your super benefit when you die. However, the trustee is not bound by law to follow these instructions.
What happens with my super when I retire?
There are a number of key questions to consider in the lead-up to retirement. As there are a number of rules regarding how you can access your super savings, it is important to start thinking about how you’d like to draw on your super a few years before you retire. You may seek financial advice at this stage from a financial professional or do your own research.
- How do I access my super fund when I retire?
- Consider whether you would like to obtain your super via an income stream paid into your bank account every month or fortnight, or a lump sum paid directly into your bank account.
- There are implications for Centrelink payments and tax depending on which option you choose, so it is best to ensure you are fully informed of all the consequences of your choice before proceeding.
- Can I draw an income from my super fund while I continue to work?
- You can access part of your super through a transition to retirement pension paid to you monthly or on a fortnightly basis.
- If I receive an income from my super will I pay tax?
- The taxation rules are set to encourage you to take your super as a pension rather than a lump sum. Whether you pay tax on your pension is dependent on your age. If you are over 60 years of age your pension is tax-free. If you are under 60 the tax rules are more complex.
- Will I be eligible for the Age Pension if I draw an income from my super?
- The Age Pension is means-tested through reviewing your assets (The Assets Test) and income (The Income Test) to determine if you require a benefit. The pensions that result as a consequence of the review are compared, and the smaller one is the one you are entitled to receive from the Government.
- It is important to note that the Age Pension always forms part of your ‘taxable income’.
What is an SMSF?
A popular approach to buying property is to set up a Self Managed Super Fund (SMSF). An SMSF gives you control over your own fund along with added responsibilities and administration tasks. There are a number of very important considerations when assessing if an SMSF is right for your needs. Outlined below are just some of the considerations:
- Do you have enough money in the fund to accommodate the yearly running costs and ongoing expenses?
- Are you fully aware of your legal obligations around an SMSF?
- Do you have the time to manage the investments in your fund and monitor the investments regularly?
- Do you have adequate insurance including life insurance, income protection, and permanent disability cover?
- Are you able to follow the strict Australian Taxation Office (ATO) rules governing SMSFs?
As superannuation is a complex area – with a range of different approaches dependant on your individual needs and objectives – you may wish to seek financial advice. Outlined below is our practice’s general approach. Bear in mind, however, the process may vary depending on your particular individual situation.
Working with MBA Financial Strategists
Are you interested in chatting with one of our financial planners? This is what you can expect:
1. An introductory meeting or workshop
At your first meeting, we will chat with you about your current situation and your goals and aspirations. It’s a chance for us to get to know each other, gather initial information and determine whether we can meet your needs.
2. Define goals and financial position
The purpose of the second meeting is to go a bit deeper and identify your objectives, needs, and priorities. It’s also an opportunity to establish what specific advice you are seeking – and what it will cost. We are committed to being fully transparent about any costs, and will always discuss them with you upfront.
3. Analysis of your needs
Your MBA FS financial planner will analyse your needs, based on the information you have shared with us. This is an important part of the advice formulation process. Tailored financial planning strategies will also be evaluated and identified at this stage.
4. Plan development meeting
At this stage, your MBA FS financial planner will have developed comprehensive financial planning recommendations – along with products and services to implement the advice. The findings and recommendations will be presented to you at this meeting. We will clearly outline how the strategies and products work – and how they meet your individual needs.
5. Plan implementation
Your own individual plan is then implemented. At this stage, you will work closely with a Client Service Specialist to ensure your plan is activated efficiently and in line with your personal financial goals.
6. Periodic review
It is important to regularly review your financial plan to ensure it is continuing to meet your needs. Together, we will determine a suitable review regime to review and re-evaluate your plan.
7. Ethical and professional behaviour embedded in processes
MBA Financial Strategists place very high importance on ethics and professional behaviour. This code of practice is reflected in all our client contacts – from advisers to administration staff.
We hope you have found this information helpful. If we can assist in any way please don’t hesitate to call the practice or make an appointment with one of our friendly and professional team.