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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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