Gearing up for your golden years requires plenty of planning. But once you get your head around Australia's superannuation system, you'll be on your way to growing your wealth for a comfortable retirement.
One of the most important decisions you can make is choosing the right superannuation fund. Make sure you understand what's involved and how to choose the right fund for your unique circumstances. Over the years, you may need to switch funds, too.
Can I choose any super fund?
When you are working, you'll need to select a super fund — this is where your employer will put the compulsory employer contributions. Any additional payments you make can also go into your chosen super fund.
In some cases, your employment agreement or relevant employment award will dictate a default fund you have to use. Otherwise, you're entitled to choose your fund, whether it's an employer fund or otherwise, provided it complies with superannuation rules.
What do I need when choosing a super fund?
It's important to have your tax file number (TFN) on hand when signing up to a super fund.
This is because super fund contributions are taxed at a low rate (15 percent) — if you want the tax benefits, you need to supply your TFN. If you don't, you won't be eligible for any government co-contributions, nor will you be able to make personal contributions. You'll even incur additional income tax on employer contributions, explains the Australian Taxation Office.
What kind of super funds are available?
Once you've established whether you're allowed to choose your super fund and have your TFN, you'll need to look at the different kind of funds available.
There are many of funds on offer, specifically:
- Industry funds
- Retail funds
- Corporate funds
- Public sector funds
- Eligible rollover funds
- Self-managed super funds (SMSFs)
Investment companies and banks offer retail funds and are generally open to everyone. Public sector funds are usually for federal and state government employees only, while corporate funds are employer-run, for the benefit of their respective employees. If you want to control your investment choices, a self-managed super fund could be right for you, but you'll be in charge of annual audits and legal fees and will need to have a working knowledge of the superannuation rules.
Which super fund is right for me?
There are many fund types, all with different attributes. You might like to consider what your chosen fund invests in — do they have good asset diversification? Remember, just because you pick a super fund, doesn't always mean you get to pick where your money is invested. Different asset classes bear different levels of risk, so make sure you understand what you're getting yourself into.
You should closely scrutinise fees, as these could quickly add up and make a dent in your retirement savings.
The longer you have to save for retirement, the more easily you'll be able to shoulder any short-term losses, in favour of solid long-term growth. By contrast, a more conservative fund – or a cash fund – is often appropriate if retirement is getting closer.
Finally, investigate the performance of a range of super funds. Carefully observe a fund's performance over the last five years to get a good idea of whether it's a smart pick for you. But remember past performance is not a reliable indicator of future performance.