From 1 November the government’s new “Super Stapling” rules come into effect, meaning your “active” super account will follow you to future jobs, with employers required to contribute to this by default (unless you nominate an alternate fund). This makes it more important than ever to understand your super and choose what’s right for you.
One thing all superannuation funds have in common is purpose: that of providing for our own retirement, with the secondary purpose of providing benefits to us or our family in the event of death or disability. Aside from this, there are a vast array of differences between funds, which we will try to simplify.
Since the purpose is providing funds for retirement, this is clearly the number one aspect of superannuation. Superannuation is basically a trust structure for holding investments, and depending on the fund, you usually have some choice about how the money is invested, just like your investments outside of super.
On the simpler side, many funds offer a variety of multi-sector investment choices: these are a pre-mixed blend of cash, fixed interest, shares, property and sometimes alternatives like infrastructure. The level of risk (or variability of returns) generally relates to the amount allocated to shares and property – more of these generally means more risk, but higher long-term returns. A Lifecycle approach has become popular, where the level of risk reduces based on the age of the member.
Other funds offer a wider choice of investments – typically retail or corporate funds and wrap accounts offered by large financial institutions. The investment choices may focus on a single sector (such as Australian shares) and can be selected in combination with other single sector investments. Some even allow you to select the individual shares yourself, or in conjunction with a financial adviser. There are also highly specialised choices, like emerging market share funds, small companies share funds or geared share funds (which combine your investment with borrowed funds in order to leverage the returns).
So, understanding what you have, and deciding whether this suits your needs in terms of simplicity, control, and overall risk/return characteristics is an important aspect of managing your super choice.
Understanding superannuation fees is not always easy, but there are generally three main parts: a weekly/monthly account fee, an administration fee, and investment fees which vary according to your chosen investments. Where the investments are the same, lower fees will result in higher net returns, but sometimes the fees are higher as a result of active investment management, which is seeking to enhance returns. So, consider fees in light of the investments as well as performance. Also, some fee arrangements allow discounts for larger account balances, as well as large company arrangements.
Ultimately, members are looking for performance (returns) on their super investment. But again, comparisons can be difficult to make. Generally, it is best to compare performance on a like-for-like basis, that is, for similar investment choices. It would be unfair to compare a very conservative, defensive investment against a high risk, high growth option. In good times, the growth option will have superior returns, but in bad times will decline in value.
It’s also best to compare returns over a reasonable timeframe, such as 5-10 years, as this allows for both good and bad times to average out, as well as some short-term variability of performance which is bound to occur for both good and bad investments.
Finally, be sure to measure performance AFTER fees (including deductions for fees that aren’t built into the returns to start with, as well as fee discounts to add back onto the standard returns).
Adding another complexity to things is insurance. Many super funds include cover for death, permanent disability, and even income protection, often with minimal hurdles for obtaining the cover. Some employers provide generous arrangements where this insurance is paid for by the company. Insurance is one of those things that is very hard to get when you discover you need it, so those with health conditions should look closely at what they already have, as well as whether there are benefits available through their workplace.
Finally, insurance can also be a hidden cost if you’re not looking closely. It’s important to have not only the right types but the right levels of insurance in place. Too little, and you’re financially exposed. Too much, and you’re wasting money that could be put towards saving for the future.
One of the big benefits that comes with some corporate arrangements is the extra education and support services available to members. At AGS, we specialise in workplace financial education, and we like to think we add a lot of value in stimulating members to take an interest and make informed decisions about their super and broader finances.
Other services associated with your super account can include the website/online access, member benefits such as discounted movie tickets and other items, and general newsletters and educational material.
Types of Super funds
The main funds available in Australia, generally in order of increasing sophistication, are the not-for-profits or industry funds, retail and corporate mastertrusts, personal wrap accounts, and Self-Managed Super Funds (SMSFs). Having said that, in recent years industry funds and corporate mastertrusts have been becoming increasingly similar, with fees reducing and investment choices becoming more similar (typically with the majority of members in the MySuper default – a lifecycle investment or balanced fund).
Personal wrap accounts tend to offer a broader range of investment choices, and have some tax advantages when compared to industry funds and mastertrusts. These advantages are due to the fact that the investments are held solely for the individual account owner, not pooled with many thousands of other investors.
Finally, for ultimate investment control, and choices like direct property (that include borrowings) there are Self-Managed Super Funds. These bring a lot of additional complexity and responsibility, but have continued to grow in popularity and size over the last 20 years.
AGS Financial Group has vast experience with all of the above fund types, and can assist you with choosing and managing your super to achieve your specific goals. If you have an interest in understanding your current super, and choosing what’s right for you, please contact us today.
Free Webinar: Understanding your Super options
If you’re at a point where you want to understand your super options and make a choice to get your super in shape, register now for our Recorded Webinar: Understanding your Super options.
AGS Financial Group director and founder Alex Berlee will guide you through his top considerations for understanding super and choosing a fund, gained over 24 years of both advising clients and investing personally. Key points include:
- Super basics (how it works)
- Types of Super funds
- AGS Corporate plans
- Getting help
Published : 10 Oct 2021