What to look for in an Australian superannuation

What to look for in an Australian superannuation fund

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
  • MySuper
  • 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.

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Learn more about superannuation

What is a superannuation fund?

A superannuation fund is an institution that is legally allowed to hold and invest your superannuation. There are more than 200 different superannuation funds in Australia. They come in five different types:

  • Retail funds
  • Industry funds
  • Public sector funds
  • Corporate funds
  • Self-managed super funds

Retail funds are usually run by banks or investment companies.

Industry funds were originally designed for workers from a particular industry, but are now open to anyone.

Public sector funds were originally designed for people working for federal or state government departments. Most are still reserved for government employees.

Corporate funds are arranged by employers for their employees.

Self-managed super funds are private superannuation funds that allow people to directly invest their money.

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 superannuation details do I give to my employer?

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 should also provide your tax file number – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

How do I set up an SMSF?

Setting up an SMSF takes more work than registering with an ordinary superannuation fund. 

An SMSF is a type of trust, so if you want to create an SMSF, you first have to create a trust.

To create a trust, you will need trustees, who must sign a trustee declaration. You will also need identifiable beneficiaries and assets for the fund – although these can be as little as a few dollars.

You will also need to create a trust deed, which is a document that lays out the rules of your SMSF. The trust deed must be prepared by a qualified professional and signed by all trustees.

To qualify as an Australian superannuation fund, the SMSF must meet these three criteria:

  • The fund must be established in Australia – or at least one of its assets must be located in Australia
  • The central management and control of the fund must ordinarily be in Australia
  • The fund must have active members who are Australian residents and who hold at least 50 per cent of the fund’s assets – or it must have no active members

Once your SMSF is established and all trustees have signed a trustee declaration, you have 60 days to apply for an Australian Business Number (ABN).

When completing the ABN application, you should ask for a tax file number for your fund. You should also ask for the fund to be regulated by the Australian Taxation Office – otherwise it won’t receive tax concessions.

Your next step is to open a bank account in your fund’s name. This account must be kept separated from the accounts held by the trustees and any related employers.

Your SMSF will also need an electronic service address, so it can receive contributions.

Finally, you will need to create an investment strategy, which explains how your fund will invest its money, and an exit strategy, which explains how and why it would ever close.

Please note that you can pay an adviser to set up your SMSF. You might also want to take the Self-Managed Superannuation Fund Trustee Education Program, which is a free program that has been created by CPA Australia and Chartered Accountants Australia & New Zealand.

How many superannuation funds are there?

There are more than 200 different superannuation funds.

What is the difference between accumulation and defined benefit funds?

A majority of Australians are in accumulation funds. These funds grow according to the amount of money invested and the return on that money.

A minority of Australians are in defined benefit funds – many of which are now closed to new members. These funds give payouts according to specific rules, such as how long the worker has been with their employer and their final salary before they retired.

How do I change my superannuation fund?

Changing superannuation funds is a common and straightforward process. You can do it through your MyGov account or by filling out a rollover form and sending it to your new fund. You’ll also have to provide proof of identity.

How do I combine several superannuation accounts into one account?

The process used to consolidate several superannuation accounts into one is the same process used to change superannuation funds. This can be done through your MyGov account or by filling out a rollover form and sending it to your chosen fund.

Can I choose a superannuation fund or does my employer choose one for me?

Most people can choose their own superannuation fund. However, you might not have this option if you are a member of certain defined benefit funds or covered by certain industrial agreements. If you don’t choose a superannuation fund, your employer will choose one for you.

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.

Is superannuation included in taxable income?

Superannuation is not included when calculating your income tax. So if you have a salary of $50,000, your assessable income would be $50,000, not $50,000 plus superannuation.

That said, superannuation itself is taxed. It is generally taxed at 15 per cent, although if you earn less than $37,000, you will be reimbursed up to $500 of the tax you paid.

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 does the age pension work?

Most Australians who are of retirement age can qualify for the age pension. However, depending on the size of your assets and post-retirement income, you might be entitled to only a reduced pension. In some instances, you might not be entitled to any pension payments.

Is superannuation compulsory?

Superannuation is compulsory. Generally speaking, it can’t be touched until you’re at least 55 years old.