How to choose a super fund

How to choose a super fund

If you’ve just started your first job, among the first challenges you’ll face is deciding on a super fund. You’ll usually get 60 days to make a choice, after which your employer will just use its default super fund to pay your super into. To avoid this, you might find yourself asking, how does one choose a superannuation fund in Australia? You can think of a super fund as a place to store and accumulate the contributions from your employer, which you withdraw when you retire. Most Aussie super funds operate on this principle. Some may offer defined benefits, so their value is based on a pre-fixed formula rather than on investment returns.

What are the different types of super funds available?

You can receive employer super contributions in a super fund managed either by your employer, an industry association, a financial institution, or yourself. For instance, someone working for the Australian federal government could choose to receive their super contributions in a public sector fund. The following are the types of super funds available to different Aussie employees:

  1. Retail super funds are for everyone and are managed by profit-making financial institutions.
  2. Self-managed super funds are for those who prefer directly handling their investments and are best handled with financial advisor help.
  3. Industry super funds are often restricted to those employees in a specific industry and are managed by non-profit organisations.
  4. Public sector super funds are solely for public servants or those who work in the public sector and are managed by government departments.
  5. Corporate super funds are instituted by companies for their employees.

In addition to these funds, there are eligible rollover funds. These funds are meant for members who have a low super balance but have exited other super funds, possibly due to not receiving any employer contributions.

Some super funds may also let you decide how you want to invest your super and what kind of assets are purchased with your contributions. For instance, you could choose a high growth option and invest all your super in stocks or property. Alternative, you could go for a mixed investment and put some of your money in an interest-paying cash deposit. There has been a growth in the popularity of ethical super funds which make investment choices for the betterment of the planet. You should gauge the super fund’s performance as well as other criteria before making your choice. If you don’t choose a super fund, you have less control over how your money is invested without switching funds.

How do I choose between two super funds?

Choosing a super fund is often the first step in planning your retirement. You may already have a few ideas about the things you’d like to do once retired like travelling, and you’ll need enough money to do so. Therefore you need to choose a super fund that will give you the financial support you need when you reach that stage. You should thoroughly evaluate each super fund and compare:

  • The fees charged for administration, investment, rollovers, and switching to another super fund.
  • The investment options available to you, the risks of investing in certain assets, and the performance of comparable investments at least over the past five years.
  • The insurance options offered by the super fund and the premiums charged. You should look for life insurance, disability insurance, and income protection. You should also decide whether you want this included or if you’ll source insurance elsewhere.
  • The service options available like financial advice and contribution splitting, and any additional fees charged for these.

You can compare various super products to find a fund that suits your needs. You may want a fund that grows your super significantly, allows convenient access to funds and has low fees. While you can choose to switch to a better performing or cheaper super fund later, you can also save on fees by picking a suitable super fund right from the start.

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What are ethical investment superannuation funds?

Ethical investment funds limit themselves to making ‘ethical’ investments (which each fund defines according to its own principles). For example, ethical funds might avoid investing in companies or industries that are linked to human suffering or environmental damage.

How do you open a superannuation account?

Opening a superannuation account is simple. When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You might want to provide your tax file number as well – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

What fees do superannuation funds charge?

Superannuation funds can charge a range of fees, including:

  • Activity-based fees – for specific, irregular services, such as splitting an account after a divorce
  • Administration fees – to cover the cost of managing your account
  • Advice fees – for personal investment advice
  • Buy/sell spread fees – when you make contributions, switches and withdrawals
  • Exit fees – when you close your account
  • Investment fees – to cover the cost of managing your investments
  • Switching fees – when you choose a new investment option within the same fund

What are personal contributions?

A personal contribution is when you make an extra payment into your superannuation account. The difference between personal contributions and salary sacrifices is that the former comes out of your after-tax income, while the latter comes out of your pre-tax income.

How long after divorce can you claim superannuation?

You or your partner could be forced to surrender part of your superannuation if you divorce, just like with other assets.

You can file a claim for division of property – including superannuation – as soon as you divorce. However, the claim has to be filed within one year of the divorce.

Your superannuation could be affected even if you’re in a de facto relationship – that is, living together as a couple without being officially married.

In that case, the claim has to be filed within two years of the date of separation.

Either way, the first thing to consider is whether you’re a member of a standard, APRA-regulated superannuation fund or if you’re a member of a self-managed superannuation fund (SMSF), because different rules apply.

Standard superannuation funds

If your relationship breaks down, your superannuation savings might be divided by court order or by agreement.

The rules of the superannuation fund will dictate whether this transfer happens immediately, or in the future when the person who has to make the transfer is allowed to access the rest of their superannuation (i.e. at or near retirement).

Click here for more information.

SMSFs

If your relationship breaks down, you must continue to observe the trust deed of your SMSF.

So if you and your partner are both members of the same SMSF, neither party is allowed to use the fund to inflict ‘punishment’ – such as by excluding the other party from the decision-making process or refusing their request to roll their money into another superannuation fund.

This no-punishment rule applies even if the two parties are involved in legal proceedings.

Click here for more information.

Financial consequences

Superannuation funds often charge a fee for splitting accounts after a relationship breakdown.

Splitting superannuation can also impact the size of your total super balance and how your super is taxed.

Click here for more information.

How do you claim superannuation?

There are three different ways you can claim your superannuation:

  • Lump sum
  • Account-based pension
  • Part lump sum and part account-based pension

Two rules apply if you choose to receive an account-based pension, or income stream:

  • You must receive payments at least once per year
  • You must withdraw a minimum amount per year
    • Age 55-64 = 4%
    • Age 65-74 = 5%
    • Age 75-79 = 6%
    • Age 80-84 = 7%
    • Age 85-89 = 9%
    • Age 90-94 = 11%
    • Age 95+ = 14%

If you want to work out how long your account-based pension might last, click here to access ASIC’s account-based pension calculator.

What will the superannuation fund do with my money?

Your money will be invested in an investment option of your choosing.

What are concessional contributions?

Concessional contributions are pre-tax payments into your superannuation account. The payments made by your employer are concessional payments. You can also make concessional contributions with a salary sacrifice.

What are reportable superannuation contributions?

For employees, there are two types of reportable superannuation contributions:

  • Reportable employer super contributions your employer makes for you
  • Personal deductible contributions you make for yourself

How do you calculate superannuation?

Superannuation is calculated at the rate of 9.5 per cent of your gross salary and wages. So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

How do you create a superannuation account?

Before you create a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).

What are reportable employer superannuation contributions?

Reportable employer superannuation contributions are special contributions that an employer makes on top of the regular compulsory contributions. One example would be contributions made as part of a salary sacrifice arrangement.

How can I keep track of my superannuation?

Most funds will allow you to access your superannuation account online. Another option is to manage your superannuation through myGov, which is a government portal through which you can access a range of services, including Medicare, Centrelink, aged care and child support.

Can I take money out of my superannuation fund?

Superannuation is designed to provide Australians with money in their retirement. The government has strict rules around when people can take that money out of their fund because it wants to prevent people eroding their savings before they reach retirement.

As a general rule, you can only take money out of your superannuation fund when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

That said, you can take money out of your superannuation fund early based on one of these seven special conditions:

  • Compassionate grounds
  • Severe financial hardship
  • Temporary incapacity
  • Permanent incapacity
  • Superannuation inheritance
  • Superannuation balance under $200
  • Temporary resident departing Australia