Your Super – the Inside Story
Superannuation is the government’s legislated system of saving for retirement. Its main advantage is the concession of reduced taxation and because it is compulsory for employed people, it’s a type of forced savings. The disadvantage is that it is complicated for the layperson; and in fact a good many financial advisers avoid detailed superannuation advice because there are just so many rules.
If you are working as an employee then you are going to have compulsory superannuation put away for you. If you are self-employed as a sole trader or in a partnership, it is optional. So while super is a tax-effective way to save, each successive federal government wants to tinker with it which usually means some reduction or other in allowable concessions, either in areas of putting in or taking it out. This has the effect of making other retirement options increasingly more attractive, including reliance on the Age pension.
There are many choices when it comes to super funds. The government says you have a choice of which super fund your employer puts your money into. That is true for some. There are many people who don’t have that choice. In my experience however, the majority of people tend to go with whatever their employer has in place because the time and effort required to research a suitable alternative is all too hard. If you want to know if you have the right to choose your super fund or not, ask your employer.
Apart from Self-managed super (which I will talk about in another post), and large corporate super funds, superannuation for most people in the business (non-government) sector is broadly split between industry funds and retail funds. The former (industry funds) are often associated with trade unions, although not all, and the latter (retail funds) are generally made up of personal super arranged by financial planners with an individual and small corporate funds arranged by financial planners with small medium business employers.
Whilst there are so many different funds in the Australian super scene with a wide range of features and offerings, they are all subject to the same rules. So in some respects, it’s not so much the fund you have, as what you do with it. Neglect is the number one worst thing you can do to your super.
So regardless of which fund you have, check these four (4) things:
How much is it costing you? – Generally speaking, industry funds are cheaper than retail funds and the reason is, you get what to pay for. But if you take no notice of your super then you may not mind. However if you have had your personal super arranged by a financial planner in the past, you might be interested in this next point. While you might be vaguely aware that that the government banned commissions from super in mid 2013, you may not realise that the grandfathering rules mean that if your retail super fund was put into place prior to that time, you could still be paying adviser commissions. Not only that, there are some older retail funds that are ridiculously expensive regardless of adviser commissions. The retail super market has become a lot more competitive now, and its much more online friendly, so it’s worth having a look at your statement and asking your adviser for a review.
Are your investments suitable for you? – The issue here is whether your investments would keep you awake at night (if you knew what they were). For example, if you are a naturally conservative person when it comes to risk taking then you may want your super investments to be much the same. If you are a risk taker then you might want your super investments to be at the growth or high growth and of the investment spectrum. The point is that your investments should be driven by your attitude to risk. It’s up to you so it might be worth getting yourself tested for risk appetite with an adviser and check which end of the risk spectrum your super investments are.
What insurance benefits do you have? – There are some good reasons why you should be aware of this. Most Australians are under-insured and the only insurance benefits they have are in super – the type that just appears because you took the job. So it is worth having look at what you have and consider whether you need any more. Also the insurance benefits are there for a reason. That is, to protect your retirement savings between now and retirement. So if you are off work for a while, there may be some temporary disability benefits that can help you. If it turns out that you can never return to work, any permanent disability insurance you have will be a blessing. Of course any death cover you have will help your family a lot if you die before you retire. The other important issue is that the insurance you automatically get in your super may be the only insurance you can ever get due to the current condition of your health. So knowing it’s there might stop you forgetting about it, or inadvertently cancelling it by changing super funds. So that brings me to another point; if you are thinking about consolidating a few super funds into one, please do not forget about the valuable insurance benefits they may contain. Get advice before doing it.
Have you nominated a beneficiary? – Ok this is about what happens to your super when you die. Even if you do prepare a will, it won’t include your super unless you specifically fill in a ‘Nomination of Beneficiary’ form and send it to your super fund, directing your super into your estate. Of course, you can nominate your dependents (e.g. spouse and kids) directly as beneficiaries but be aware that you can’t nominate mum, dad, brothers, sisters, aunties and uncles. This makes it difficult if you are single and effectively leaves you with one choice. And don’t forget about life insurance that you might have in your super. if you die, it becomes a factor in money left to your beneficiaries.
I hope that helps answer a few superannuation questions. My purpose in writing this article is to make you a little more aware of your super, and to encourage you not to neglect your super. It’s your money. Also need to tell you that nothing in this article should be interpreted as advice. I encourage everyone to seek advice relevant to your personal situation from a licensed financial adviser.