Tips to Choose the Best Superannuation Fund
Why is choosing the best superannuation fund important? Superannuation is on average the second biggest physical asset held by families behind the family home, making up almost 20% of a families wealth1. In spite of this, most people have seemingly little interest in their superannuation savings. Less and less can the aged pension be relied upon to provide an adequate income throughout retirement and it has been a stated intention of the Australian Government since the introduction of the superannuation scheme to reduce the public cost of providing the aged pension. The current aged based pension payment rate for a couple (combined) is $564 per week2, yet for a comfortable retirement, $983 a week is needed3.
With aged pension qualifying ages being extended and payment rates reducing compared to average earnings, coupled with the sizable portion of wealth that superannuation holds for individuals and their retirement, greater attention needs to be given to finding the best superannuation fund, ensuring that superannuation accounts are contributed into and are maintained in the most appropriate manner to ensure that a person can live an comfortable and sustainable retirement.
There are number of considerations looked at when finding the best superannuation and the appropriateness of a superannuation fund for an individual. Arguably, the biggest consideration is the number of accounts held.
It is still extremely common for people to hold multiple superannuation accounts. It is not uncommon for these multiple funds to charge multiple fees and for clients not to understand what they are actually paying for their superannuation funds. Multiple fees generally mean duplicated fees and an increased cost for little benefit. As an integral part of superannuation and retirement planning it is always a good idea to consolidate multiple superannuation accounts into a single superannuation fund that can provide the flexibility for saving and for retirement drawings.
Second to the number of accounts is the actual fees themselves. A lot of people don’t tend to know exactly what fees or how many fees they are paying which reduces transparency within their superannuation fund and can reduce the confidence that a person holds in their retirement fund.
A lot of people don’t know that you can maintain most superannuation accounts across multiple employers and you can generally hold the one fund until your retire. Most people do not need to change, yet a lot of people still pick up multiple funds or even change funds whenever they change employment. A question that I ask clients, is you wouldn’t change your bank accounts or get a more bank accounts every time you change employers, so why do so with your superannuation?
Depending on the manner in which a person is invested, having multiple superannuation accounts or changing/adding accounts frequently, can have an impact on a final retirement balance.
A big feature of having a single fund is having one single and concise fee structure that you can predict and estimate into the future. Choosing a fund that has a single, simple fee increases the clarity of the account and allows a person to estimate the true cost of their fund 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;
FirstChoice Wholesale Super
REST Industry Super
|Ongoing Investment Fee’s|
|Investment Management Expense||0.7%||0.62%|
|Investment Choice Fee||Nil||$13|
|Member Protection Fee||Nil||0.06%|
|One Off Transaction Fee’s|
|Investment Switch Fee||0 – 0.75%||$20 (payable after 4 p.a.)|
|Family Law Split Fee||Nil||$50|
|Contribution Split Fee||Nil||$60|
**Correct as at 10th January 2012
The difference in the fees is stark. The first example has one investment fee. If you have $50,000 in superannuation you know your fee will be 0.7%. 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
Another key feature of retirement planning and superannuation is flexibility within a fund. Fund feature seem to get looked as less commonly and some features may confuse members, however 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.
Investment choice is another big factor in the way that people perceive their superannuation. A lot of people don’t know how their retirement savings are handled or which regions, companies and projects their invested in. Again, the lack of transparency with investments, the driver of a superannuation account, reduces confidence, which in turn reduces a person’s desire to take a serious interest in their superannuation. Without 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 superannuation fund allows greater choice to seek the types of investments best suited and also allows a person to reduce their investment risks 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. Most superannuation accounts have a small amount of insurance automatically offered; however a lot of more flexible superannuation fund providers allow full access to retail insurance options allowing a person to use the tax effectiveness of their superannuation to fully meet and fund their insurance needs. Access to the full suite of retail insurance needs with the assistance of superannuation, reduces the chance that a person will become underinsured or not insured at all by in some cases limited superannuation based insurance options.
Choice of fund is fundamental and with over 400 superannuation funds in Australia, choosing the right super fund, underlying investments and insurance solution can be the difference between a satisfying and comfortable self-funded retirement or a more difficult aged based pension funded retirement. The sooner a person engages with the most tax effective way to build wealth for retirement, the easier it is to meet the goals we all have.
Primoris Financial are specialists at finding the best superannuation for our clients. With a wealth of knowledge and access to over 50 superannuation funds, we can compare the options available to you to find the best superannuation for your circumstances. Questions? Email Primoris Financial here