Choosing the Right Superannuation for You

Most Australians can choose the superannuation fund they want their employer to pay their contributions to. But with so many funds to choose from – and so many investment options – the choice can be overwhelming.

Getting it right is critical because your decisions around superannuation can significantly affect your lifestyle in retirement. So what do you need to consider? We’re here to help.

Can I Choose My Super Fund?

Yes, most people can choose which superannuation fund they want their employer to pay contributions into.

However, some jobs may specify you belong to a particular fund – or that you choose from a small range of funds. Check with your employer.

Most Australians have the freedom to choose whichever superannuation fund they want.

You’re generally eligible to choose a super fund for your super guarantee contributions if:

  • Your super is paid under a federal award or a former state award
  • You’re employed under another award or agreement that doesn’t require super support, or
  • You’re not employed under any award or industrial agreement (including contractors paid principally for their labour).

Depending on your job, however, there may be instances where you do not have a choice – or you have limited choice – on what superannuation fund you belong to.

For example, you are generally not able to choose your own superannuation fund if:

  • The industrial award covering your job specifies that you must belong to a particular fund
  • You belong to a ‘defined benefits fund’

Sometimes, the industrial award covering your job specifies that you must choose from a select group of superannuation providers put forward by your employer. Check with your employer which award your job will fall under.

How to Choose a Super Fund

With so many superannuation funds to choose from, finding the one that’s just right for you can be daunting.

By breaking down your choices, you will get a clearer picture of the fund that suits you best.

When you start a new job, one of the first things your employer will typically do is hand you a ‘standard choice form’ to fill out.

This form specifies which superannuation fund you would like your employer to deposit their compulsory superannuation contributions in to.

There are literally dozens of different superannuation funds to choose from, so how do you know which one is best for you?

Take time to make your decision and do your homework – because the decision you make has the potential to significantly affect your lifestyle in retirement.

Your decision will be based on a number of factors, including:

  • The performance of the super fund
  • The fees it charges (the lower the better)
  • Your age and stage in life
  • What the superannuation fund offers in terms of insurance, services and extra benefits

The table below provides an overview of the key factors to consider when comparing super funds.

Things to compareWhat to look out for
FeesAlways be mindful of the impact of fees.
Investment optionsMake sure there are options that suit your needs and comfort with risk.
Performance*Pick a fund that has performed well over the last 5 years – do not chase last year’s best performer.
InsuranceSee what cover is available and what it will cost.
ServiceCall the fund or browse their website to see what other services they offer.
Extra benefitsYour employer may pay more than 9.5% for certain super funds or if you make extra contributions yourself.

Source: MoneySmart

*Past performance is not a guarantee of future performance.

Super Fund Fees

All super funds charge fees. These fees vary across all funds and have the potential to significantly affect your superannuation balance at retirement. It is important to be aware of this potential impact and ensure you are paying an acceptable level of fees.

This is a common question the financial planners at MBA Financial Strategists are asked, so contact us today for help in assessing the fees you are paying and click below for more information on the types of fees charged by superannuation funds and the potential impact of these fees.

Find Out More About Superannuation Fees

Investment Options of Super Funds

Superannuation funds invest on your behalf and most funds will let you choose from a range of investment options.

The risk associated with each investment option can vary quite significantly – and what you choose will depend on your age, your retirement goals and how much risk you are prepared to take.

Generally, a ‘conservative’ option offers lower returns, because the risk is lower; while ‘growth’ options carry a greater risk – but can return more.

Types of investment options can include:

  • Growth – which primarily invests in shares or property (around 85%)
  • Balanced – which invests around 70% in shares and property, and the rest in fixed interest and cash
  • Conservative – which invests primarily in fixed interest and cash, but includes around 30% in shares and property
  • Cash – which invests 100% in Australian deposit-taking institutions or in a ‘capital guaranteed’ life insurance policy
  • Ethical – which invests in companies that meet certain environmental, social and governance standards set out by the superannuation fund.

Performance of Super Funds

How a superannuation fund performs is critically important to the growth of your superannuation monies.

Even a 1% difference in performance can add – or detract – tens of thousands of dollars from your superannuation nest egg over a lifetime of employment. Just imagine how that could positively or negatively affect your retirement lifestyle!

A word of caution, however. How a super fund performed last year may not be a reliable indicator of how it will perform in the coming year, or years.

The key is to look at a superannuation fund’s performance over a number of years. While it is not a guarantee that this is how it will perform in the future, it will give you a pretty good indication of its averaged and proven performance.

Check out the table below to see just how much a fund’s performance could affect your superannuation retirement nest egg!

Example: The Difference 1% in Annual Investment Earnings Could Make on End Superannuation Balance

Age25 years old25 years old25 years old
Income$50,000 indexed at 2.5%$50,000 indexed at 2.5%$50,000 indexed at 2.5%
Superannuation Earnings6% per annum7% per annum8% per annum
Annual Fees1% of balance1% of balance1% of balance
Account Balance at 65$884,701$1,094,743$1,410,203

Source: Canstar

Insurance Included in Super Funds

Many superannuation funds offer basic death and Total and Permanent Disability (TPD) insurance for their members as a default.

This means that you automatically receive a basic level of death and TPD cover – even without a health check.

Many superannuation funds allow you to increase, decrease or even cancel your default insurance cover – giving you greater flexibility on the level of cover that suits you and your personal circumstances.

While you’ll still pay for the insurance through premiums deducted from your super account, it’s a simple and stress-free way to ensure you are covered in the event life throws you a curveball.

Super funds typically offer three types of insurance:

  • Death (or life insurance) cover. This is the benefit your beneficiaries will receive in the event of your death
  • Total and permanent disability (TPD) cover. This is the benefit you will receive if you are unable to ever work again due to sickness or injury
  • Income protection This cover ensures you receive an income stream in the event you cannot work due to temporary illness or disability.

To find out exactly what your superannuation fund’s insurance covers – and through which insurer – check out the product disclosure statement on your superannuation provider’s website.

Other Services Offered by Super Funds

Many superannuation funds ‘value add’ to make their fund more attractive to potential members.

Take your time and really tease out what each superannuation fund offers, because these extras can really add up to something significant in the long term.

For example, some employers will pay more than 9.5% if you opt for certain superannuation funds, or if you make extra contributions yourself.

Other benefits offered by superannuation funds include:

  • Free online financial calculators to help you track and grow your super
  • Access to a personal Relationship Manager, who can provide personalised assistance with your super
  • Access to online professional advice or ‘financial coaching’
  • Member discounts such as discounted health insurance and home loans
  • Loyalty bonuses
  • Free educational seminars on retirement planning or growing your super.

Choosing a Super Fund to Suit Your Level of Risk

Types of Investment Options

Superannuation funds invest across a range asset types – and to different weightings – to grow your nest egg over your working life. Most funds let you choose from different investment options available. What you decide will generally depend on the level of risk you’re comfortable with, and what stage of your working life you’re at.

Growth

Growth or high growth investment options sit at the higher end of the risk spectrum. By investing around 85% in shares or property – or up to 100% in a ‘high growth’ investment – this option aims for higher than average returns over the long term. However, with higher than average growth in good years come higher than normal losses in bad years. Historically, however, higher-risk investments have been shown to earn the highest returns over the long-term.

Balanced

Reflecting its name, a balanced investment will aim for reasonable returns, but less than in growth funds. This is in order to reduce risk in ‘bad’ years. A balanced investment will generally invest around 70% in shares and property – and put the rest in fixed interest and cash.

Conservative

The conservative investment option aims to reduce the risk of loss. In order to do this, it accepts a lower return over the long-term. A conservative investment strategy is generally an investment of around 30% in shares and property, with the balance in fixed interest and cash.

Cash

This lower-risk, lower-return option invests 100% of your super with Australian deposit-taking institutions or in a ‘capital guaranteed’ life insurance policy. This gives you peace of mind by guaranteeing your capital and accumulated earnings will not be reduced by losses on investments. Historically, however, this strategy earns the lowest returns of all options – only slightly above inflation.

Ethical

If you want to grow your investment, but not at the expense of the environment or your social beliefs, this may be the option for you. An ethical investment option only invests in companies that meet the environmental, social and governance standards set out by your fund. Depending on the type of investments it selects, however, an investment option that follows an ethical strategy can sit anywhere on the risk spectrum – from conservative to high growth.

What Level of Risk Should I Be Comfortable With?

Your superannuation fund will offer you a wide range of investment options.  Some investment options will be riskier than others. For example, investments such as shares or property have the potential for higher returns over the long term, but also pose a greater risk of falling in value.

Cash and fixed interest investments come with lower risk, on the other hand – but they also offer lower returns.

When making your decision, it’s important you consider your own individual circumstances. Ultimately, the factors that will guide your investment strategy will include:

  • Whether you’re at the start of your working life, somewhere in the middle, or are nearing retirement
  • How comfortable you are with taking risk
  • When you can – and want to – access your super funds
  • Your goals for retirement.

For younger people, the short-term fluctuations that can occur when investing in higher-risk options such as shares may not be as critical. They have time on their side and the knowledge that over the long term, the fluctuations are likely to be outweighed by the higher returns.

For people nearing retirement age, however, it may be wiser to take a more conservative investment strategy.

Self-Managed Super Funds

Self-managed super funds (SMSFs) are another option when making a choice on superannuation. SMSFs give you control over your superannuation fund but come with additional responsibilities and administration. When assessing whether a SMSF is right for you, there are some important considerations. Click below for more information, or contact us today to determine whether this may be an option for you.

Find Out More About Self-Managed Super Funds

 

If you need help choosing the right superannuation for you please don’t hesitate to call the practice or make an appointment with one of our friendly and professional team.

 

 

MBA Financial Strategists Pty Ltd ABN 13 008 285 756 is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited, Australian Financial Services Licensee and Australian Credit Licensee. This article contains information that is general in nature.  It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.

This information contained in this article may contain references to other special offers or promotions offered by persons who are not part of the AMP group of companies. AMP has not verified, and is not responsible for, the information provided by other parties or persons not part of the AMP group of companies.  Subject to any applicable law which cannot be excluded, AMP group of companies and MBA Financial Strategists Pty Ltd makes no warranties or representations regarding the quality, accuracy, merchantability or fitness for purpose of the goods or services available from these persons. Your obtaining of goods or services from these persons is at your own risk. AMP group of companies does not accept any liabilities arising from reliance on the access and the availability of the information, or fees and charges that relate to the use of such information.

 

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