Work Super 101 – Part 1
If you have a full time job or part time job, then you will have superannuation.
Regardless of your views on super, it is compulsory for employers to pay a certain level of super for their employees. It is currently 9.5% of your ordinary time earnings. Generally speaking, it is paid on the amount you earn for your ordinary hours of work.
As an employee starting a new job, your employer will provide you with a number of forms to complete. Amongst them will be:
- a TFN Declaration form to help the employer calculate how much income tax to deduct from your gross pay and remit to the ATO on your behalf (you have to fill in Part A); and
- a Super Choice Form which is your instruction to your employer as to which superannuation fund you would like your super to be paid into
Because of the excitement of the new job, filling in forms becomes a bit of a chore. For most people, nothing is more boring than superannuation (apart from watching paint dry) so when it comes to choosing a super fund, the easiest choice is to tick whatever default option the employer offers. Super is super right? Who cares?
You should care! If you choose the default super option offered by your employer, your money will generally go to a default option or a MySuper option in one of the following types of super fund:
- Industry fund
- Government fund
- Corporate fund
- Employer-sponsored fund
I am not saying that these funds are poor choices. What I am saying is that your apathy in not making a more informed decision is the poor choice. It’s leaving your retirement savings in someone else’s hands and hoping for the best that is the poor choice. By doing so, you are giving up the opportunity to have active control over your money. I’m sure you wouldn’t do that with any other money you have.
Also, the rod you are making for your own back is, by repeatedly selecting the default employer option every time you change jobs, you end up with a trail of superannuation accounts behind you.
While many employees in private enterprise can choose where their super goes, there are some employee groups who can’t. It would come as no surprise that the most notable exceptions to the freedom of superannuation choice are the employees of union driven workplaces and the employees of the government itself.
If you work in any level of government in Australia, you will only be allowed to contribute to the relevant government super fund. Similarly, if you work is a unionised workplace, you are likely to find there is an award or workplace agreement which forces your employer to direct all or part of your super to a relevant industry fund. Industry funds are those funds which are run for the benefit of their members and of course, their associated unions.
Most clients I see for a SMSF review have not done much about Estate Planning.
The number of people establishing self-managed superannuation finds (SMSF) continues to increase. People are enticed by the prospect of having control over their own superannuation affairs. But in my experience, people don’t realize the full extent of what they are getting themselves into. Having control may be desirable, but being your own administrator, accountant and investment adviser is very challenging and can be a trap for many SMSF newcomers. Although it is easy to outsource all of these knowledge gaps, the resulting cost structure can be very expensive. In many cases, people set up SMSFs without doing enough homework. Often they fail to reach the objectives they set for themselves and could have been better off choosing an appropriate APRA-regulated fund. In my experience, people don’t understand the wide range of superannuation choice available. Unless a member investor particularly wants to invest in direct property through superannuation, other forms of superannuation should also be considered before the decision is made to set up a SMSF. ASIC (The Australian Securities and Investments Commission) is also concerned about trustee knowledge gaps. The corporate and financial services industry regulator has weighed in recently and, as part of its SMSF taskforce activities, has outlined a range of factors it believes are important for financial advisers to discuss with their clients. Conversely, anyone considering a SMSF should seek unbiased advice before acting. In particular, more information should be sought and greater consideration given to:
Whether we are employed or business building or both, we all face the same problem. That is, how to finance that period of our lives from so-called ‘retirement age’ to the day we die.