Let’s face it, superannuation can be a tough topic to get excited about. It plays an important role in your financial wellbeing but many people find it complex. Understanding how superannuation works and what your options are can help you to take control of your super savings.
Important to note: If you have completed Guide Your Money Topic 6 – Investing, you will be familiar with some of the terms relating to investments that are used to learn more about your superannuation.
Super and me
Superannuation is a way to save for your retirement. Super starts to build when you start work, as your employer makes contributions into your fund for you.
Your superannuation money is invested in various assets and the earnings on those investments are put back into your super account, so that you have earnings on your earnings – the power of compounding returns.
When you retire, the money in your super provides an income for you since you are no longer earning a salary.
Money that is contributed to super cannot be accessed until you retire except in special circumstances, for example, serious ill-health or permanent disability
How do you feel about your super?
It’s hard to understand! You’re right, there is a lot of jargon that can make it sound difficult. This topic will help to simplify this.
There are too many choices! You’re right, there are lots of choices but you can take a simple path through the super ‘maze’.
Why bother? A little super now will make a big difference in the future
I’m too busy to think about it! It does take time initially to understand it, but then it takes less time to check it regularly than you would spend on other priorities like walking, shopping, going to the gym, cooking, cleaning …
I can’t afford it – I’ve got too many other debts – so I aim for the bare minimum! When you manage your debts, putting a little aside for your future can go a long way.
My account balance keeps disappearing in fees and insurance! Contact your super fund to find out if there is an alternative fun that has lower fees/insurance.
Do I need super?
Although retirement is a long way off, saving small amounts today can make a big difference to your retirement lifestyle – that’s the magic of compounding returns.
Your super is intended to fill the gap between what the pension pays and what you need to live comfortably. To encourage you to save for your retirement, there are tax advantages for super.
Choices, choices, choices
There are many choices you can make with your super. In reality, you can make your super choices as simple or as sophisticated as you want.
Choice 1 – Which super fund?
A super fund manages your super, invests your money on your behalf and handles all the administration.
Simple: You can leave it up to your employer to choose for you (your money goes into a MySuper account and there are no more choices you need to make)
Sophisticated: You choose the fund based on your own research.
Choice 2 – Which investment option?
Super funds offer investment options – these are portfolios of assets (e.g. a mix of cash, shares, property) with different levels of risk and return. The super funds offer a range of options so that you can choose the one that best suits your needs.
Simple: Usually MySuper has only one investment option – a balanced fund. Some MySuper accounts also offer a lifecycle fund. Some MySuper funds also offer a lifecycle fund. A lifecycle fund adjusts the investment mix for your stage of life. For example, when you are younger the fund will invest in a growth or higher risk option, and as you approach retirement the fund will invest in low risk investments to preserve your savings.
Sophisticated: You learn about the different investment options and choose the one that best suits your circumstances:
Choice 3 – Do I take out insurance?
Super funds offer life insurance and total and permanent disability (TPD) cover, and some offer income protection as well. The fee is taken out of your super account balance. You choose your insurance based on what you and your family would need if something were to happen to you.
Simple: A MySuper account automatically includes a basic level of life and TPD cover.
Sophisticated: You can change the level of cover at any time to meet your needs:
Taking a break
Women face different challenges to men in relation to their super. Women’s life expectancy is longer than that of men, which means that women will be reliant on their super for longer. Women may earn less than men, depending on the work they do, and are more likely to take career breaks as carers for children and/or elderly parents. Lower incomes and career breaks affect women’s super balances at retirement.
Fees and charges
Super funds charge fees for their services. Often these fees are a percentage of the amount in your super. The lower the fees, the less impact on your future super balance. Fees charged by super funds are deducted from your super balances. The size of the fees will affect the power of compounding of your returns.
Super funds also offer other services such as financial education tools, life and disability insurance.
Important to note: Financial institutions must provide a Product Disclosure Statement (PDS), which includes information about the product’s key features, fees, benefits, risks etc. Always read the PDS.
Building up your super
Some useful tips for building your super include:
- Find your ‘lost’ super – if you have lost track of any of your super, it can be found
- register with the ATO via myGov
- You could consolidate your super into one account to minimise fees and charges
- you can do this via myGov or your preferred super fund can help you do this
- Keep track of your super by monitoring account balances and investment returns
- Your balance should grow faster if you make extra contributions: MoneySmart on super contributions
- If you don’t understand something on your super statement, contact your fund for an explanation.
Dive Deeper: What is MySuper?
What is MySuper?
MySuper is a type of super account which is simple for people to understand and compare on the basis of performance, cost and insurance.
MySuper accounts offer:
- lower fees
- simplified investment options – either:
- a single investment option, or
- a lifecycle investment option i.e. an investment option which is based on your stage of life
- basic insurance cover
You can find the MySuper account information (known as MySuper Dashboard) for any super fund at the find’s own website.
MySuper Super performance
The historical return is calculated over a 10 year period and so is the estimated return. You can compare the historical return and target to find out whether the fund is achieving its target.
MySuper Investment risk level
a specific measure of risk which measures how many years in a 20 year period can you expect a negative return. It is not a measure of how much you can lose, nor is it a measure the chance of not meeting your objectives.
Dive Deeper: More about choosing a Super fund
Some things to think about when you are choosing your super fund:
- Do the investment options suit your circumstances and your attitude to risk?
- How much are the fees? Remember that fees reduce your super balance
- How much does insurance cost and does it cover all the things you want? Super funds offer life and disability insurance
- What were the fund’s returns over the last 5-10 years? Look for a fund that has performed well over the longer term, not just over the short term. Remember that past performance does not indicate future performance.
- Does the fund offer any other services? Check out their website to see what else they have to offer – many funds provide financial education tools to help you develop your knowledge
- Do you understand the investment option you have selected? You will have your super for a long time, so be informed before making a commitment
There are a range of super comparison websites available to help you to compare funds – be aware that they don’t always tell the full story, so you need to do your own research as well. ASIC’s MoneySmart on super comparisons has independent and reliable information about using super comparison websites:
To transfer your super, you can get a transfer form from your super fund, or from the Australian Tax Office.