Why is choosing the best superannuation fund important? Superannuation is on average the second biggest physical asset held by families behind the family home. It represents almost 20% of a families wealth1. Given this fact, it still boggles me why people tend not to care about superannuation savings the same they do about the money in their bank account. The whole point of superannuation when it was introduced by the Australian Government was to reduce the public cost of providing the aged pension – look at this years Federal Budget just to highlight this! The current full aged based pension payment rate for a couple (combined) is around $635 per week2, yet for a comfortable retirement, $1,111 a week is needed3 – a shortfall of almost $500 per week!
Aged pension access ages are moving out to 70 and payment rates reducing compared to average wage growth. This fact coupled with the sizable wealth that people already hold in superannuation, greater attention needs to be given to finding the best superannuation fund. Not only is it simply finding the best superannuation fund but attention needs to be given to your superannuation contributions and keeping engaged with your superannuation account. Fail to plan and your retirement will fail!
So how do you find the best superannuation fund for you? First, ignore superannuation advertisements! Any message that is conveyed in an advertisement is biased and based on disclaimers that are too small and shown too quick to be understood!
Moving past that, there are a number of things that should be looked at when finding the best superannuation for an individual. Arguably, the biggest consideration is the number of superannuation accounts held.
It is still extremely common for people to hold multiple superannuation accounts. Every superannuation fund charges a fee. So two funds is two fees for basically the same service – an increased cost for little benefit. Have more than two funds? Well you have more than two superannuation fees – do you really understand what you are paying and what you are paying for? Duplication of fees will reduce your retirement balance.
In addition to the duplication of superannuation fees is the duplication of other services – particularly insurance. Australia basically has a chronic under-insurance problem – but without giving your superannuation the tender loving care it needs, you probably have 2 insurance policies with differing features and differing premiums.
A lot of people don’t know that most of the time, you can keep your superannuation accounts when you move to your next job and employer. In fact most of the time you can keep the same superannuation fund all the way until retirement. All it takes is a simple ‘Superannuation Choice Form’ given to your employer when you start a new job to stop you getting a new super fund automatically.
A very simply question asked – You wouldn’t change your bank account or get a new bank account every time you change employers, so why do so with your superannuation?
The first step in building your retirement savings and finding the best superannuation for you is to consolidate your multiple superannuation accounts into a single superannuation fund that can provide the flexibility for saving and for retirement drawings.
Tip: Most of the time your new employer is obligated to give you a superannuation choice form. If they haven’t, you should ask and if they have no idea, you can get a Superannuation Choice Form here. The same as take your bank account details to your new job -take your superannuation details. Picking up that extra super account for no reason could cost you an additional 2% in fees.
So we have decided that keeping it simple with a single super fund is the best idea to finding the best superannuation fund. Next on the list is finding an account that offers a simple fee structure that you can understand. Choosing a fund that has a single, simple fee simplifies the account and allows you to estimate the true cost against performance. See an example below of the two funds and their product fee schedule for a member invested in a comparable balanced index fund4;
Colonial First State FirstChoice Wholesale Super
REST Industry Super
|Ongoing Investment Fee’s|
|Investment Management Expense||0.73%||0.63%|
|Withdrawal Fee||Nil||$25 from 2nd withdrawal|
|One Off Transaction Fee’s|
|Investment Switch Fee||0 – 0.75%||0.13%|
|Family Law Split Fee||Nil||$50|
|Contribution Split Fee||Nil||$60|
**Correct as at 22nd May 2014
The difference in the way a fee is charged and the amount is substantial. The first example has one investment fee. If you have $50,000 in superannuation you know your fee will be 0.3%. The second example, to work out your fees at any point, without considering any additional services like withdrawals and investment changes is a lot more difficult and clouds the actual true cost of the account.
Super Fund Features
Although fees are important, focusing purely on price is just as dangerous! Your life will change significantly as your flow through your life. Flexibility within a superannuation fund is helpful to prevent chopping and changing that could impact your investment strategy. Fund features seem to get looked as less commonly and some features may confuse members. Superannuation funds offer a range of features like flexible insurance ownership, discounts on other financial products, share trading and spouse contributions splitting.
In addition the administration services of a superannuation fund can impact benefits – will your fund deduct Capital Gains Tax or will they make you sell your investments before re-buying them when you move into a pension account and do they offer a refund of contributions tax to your spouse on death (anti-detriment). A fund that offers flexibility provides members access to a wider range of strategies that could provide extra benefits during accumulation and retirement.
Tip: Don’t sacrifice price for value. Don’t get me wrong, some of the ‘cheaper’ funds can offer solid features and value, but you need place a value on features. Saving a few dollars now at the expense of a particular feature, may cost you thousands down the track!
So how does your superannuation fund bankroll your retirement? The investments! Your superannuation account is simply the ‘bucket’ that holds your investments. The investments are what you want to keep an ongoing eye on. A lot of people don’t know how their retirement savings are invested – which regions, companies and projects their invested in.
Take control of your investments, either by getting advice or taking the time to make the right decisions. Seek information from your superannuation fund and demand transparency. If you cannot find out who and how your money is invested – you do not have control. Without control, confidence and interest, a person cannot effectively save for their retirement.
A major benefit of maintaining a single flexible super fund is that you can track your investments across investment classes and can find out exactly where your funds are invested. A wider choice of investments and investment managers available within a single superannuation fund allows greater choice to seek the types of investments best suited and also allows a person to reduce their investment risk by spreading their funds.
Prudent investing is normally a long term strategy and to do so needs a stable account and investment strategy to contribute into. Investment quality is a major issue – although some funds may offer a range of investments, the quality of those investments might be substandard, impacting returns.
Insurance is under used superannuation. Within superannuation a person can insure against death, permanent disablement and loss of income via illness/injury. Most superannuation accounts have a small amount of insurance automatically offered – but this is rarely enough. A lot of the time also this limited insurance will reduce automatically as you get older making your claim amount more guesswork than certainty.
More flexible superannuation fund providers allow greater access to both superannuation and non-superannuation insurance options. This allows a person to use the tax effectiveness of their superannuation fund to better meet and fund their insurance needs. The best superannuation fund will let you both grow and protect your wealth properly.
The choice of your superannuation fund is important. With over 300 superannuation funds in Australia, choosing the best super fund, underlying investments and insurance solutions can be the difference between a satisfying and comfortable self-funded retirement or a more difficult aged based pension funded retirement. The sooner you engage with the most tax effective way to build wealth for retirement, the easier it is to meet the goals we all have.
The MoneyGeek has partnered with CompareMySuper to assist people find the right superannuation fund for their needs. CompareMySuper will review over 50 superannuation funds and recommend a product for you. Click here to find the best super for you!
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About the Author – Benjamin Irons
Benjamin has been involved in the financial services industry since 2004. Benjamin has a Bachelor in Business, Diploma of Financial Services (Financial Planning). Previously a Financial Adviser and a business owner, Benjamin has worked with hundreds of individuals and businesses to implement simple strategies to improve wealth. Benjamin writes for a number of websites to assist people take control of their finances and find their financial freedom!