Superannuation is one of the most important investments you will make in life. Strangely, though, many Australians don’t give super a lot of thought.
As the government continues to raise the age pension qualifying age, many of us will face the prospect of a self-funded retirement. The good news is the superannuation industry is responding by becoming increasingly competitive and you can often find a better deal.
We’re going to look at the importance of superannuation comparison, and how comparing super funds can help give you the edge in retirement.
What is superannuation?
Superannuation is designed as a strategy to accumulate enough funds in your working days to provide you with a steady income in retirement.
Your super balance grows through compulsory contributions from your employer, which you can supplement through voluntary contributions and salary sacrifice arrangements. Your funds will be pooled with those of other members, and will be managed by professional investors with a view to grow it steadily and provide solid returns, no matter how the market is performing.
In most cases you will not be able to access your superannuation funds until you’ve reached the point of retirement.
Why is it important to compare super funds?
Superannuation is by no means a one-size-fits-all prospect, and there are many advantages to testing the market and seeing if there is a product that better suits your financial needs.
Super funds can vary greatly in terms of fees and projected returns on investments. It’s also important to consider the add-ons you may qualify for when joining a super fund, including death, disability and income protection insurance.
Taking these factors into consideration when you compare your superannuation with other options is the best way to ensure you’re getting bang for your buck, or realise that perhaps it’s time to start looking elsewhere.
What should you look for when comparing superannuation?
When you’re comparing super funds, it’s important to have your retirement goals in mind. Superannuation comparison requires you taking a variety of factors into consideration, and little details can make a big difference in terms of your overall retirement outlook.
For instance, one fund might seem like a good option because if offers low administration fees. But it might not have the additional extras other funds possess, and it might offer a lower rate of return for members.
Here are some things to consider when comparing super funds:
- Performance – While it shouldn’t necessarily be considered a reliable indicator of future performance, annualised returns from previous years at least gives you an idea as to how the super fund has tracked in the past against competitors. RateCity makes it simple to compare a range of super funds by performance.
- Fees – Superannuation accounts incur a range of fees that could impact your overall balance. These could include administration fees, advice fees, indirect costs and insurance premiums. The amount and size of these fees varies from fund to fund, so it’s important you’re comfortable with the fees you’re paying. If you’re not, it’s time to test the market.
- Additional extras – The superannuation industry is becoming increasingly competitive, with many funds looking to entice new members with added extras. These could include anything from advisory services to insurance, income protections and online access. When comparing super funds, it’s important to take the additional extras into account.
Are there different types of superannuation funds?
When it comes to super there are quite a lot of options, with multiple fund types available for people looking to shore up their retirement income.
When you’re comparing super funds, it’s important to be aware of these fund types, as well as their advantages and disadvantages. This makes it easier to choose a fund that represents the best option for you.
- Industry funds – These funds are not-for-profit entities, set up purely for the benefit of members. While many industry funds are now open to all members of the public, they were once exclusively tied to a profession (such as doctors, lawyers, etc). Industry funds generally offer simple options, so you’re not charged for extras you don’t need.
- Retail funds – These funds are run for the profit of shareholders. The companies that own these funds intend to retain a degree of profit, but they’re open to everyone and generally come with a lot of investment options.
- Self-managed super funds (SMSFs) – After the global financial crisis (GFC), self-managed super funds took off in Australia, as many super owners saw their traditional funds dwindle. SMSFs are more difficult to manage, but they can offer certain advantages. With an SMSF, you control the investment directly, opening a greater number of investment options to increase your retirement savings.
Is it possible to change funds?
Many people in Australia miss an opportunity to maximise their retirement savings by failing to test the market and see what other super options are out there. Changing superannuation funds, or consolidating multiple funds into the one account, has the potential to maximise your savings, however there are some important factors to be aware of.
- Termination fees – Many funds have termination fees that will be incurred if you look to change funds. Before making the decision to change funds, it’s important that you are aware of any such fees so you can make an informed decision.
- Levels of insurance – Different superannuation funds offer different levels of insurance, and it’s important that the fund you’re moving to offers a level that is in line with your expectations. If not, you may find yourself under-insured or over-insured.
- Can your employer pay – If you’re planning to jump ship to another fund, it’s important that your employer is made aware of this, and can make contributions to the new fund.
How much superannuation will I need to retire?
This is one of the big questions in life facing many Australians, and while the numbers have been crunched there really is no simple answer. When putting a number to a ballpark figure, you need to consider not only how long you will live after finishing work, but also what type of lifestyle you want, and any future medical costs on the horizon.
The Association of Superannuation Funds of Australia’s (ASFA) figures for March 2017 suggest the lump sum required to support a comfortable lifestyle is $640,000 for a couple and $545,000 for a single person, assuming some partial drawing of the age pension. But this figure may not be in line with what you want out of retirement. That’s why it’s so important to compare super funds and make sure the one you’re contributing to is best place to meet your retirement goals.
I’m ready to start comparing funds. What’s next?
If you feel like you could be getting a better deal elsewhere, it’s time to test the market. RateCity makes it easy to compare superannuation funds so you can be sure you’re in the best position to enjoy retirement on your terms, once your working days are over.