Retirement isn’t something most people think about at a young age – in fact most of us avoid thinking about getting old at all. For this reason, superannuation was set up, to prepare for the inevitable – aging.
However, although the idea of retiring with loads of money is appealing to most of us, superannuation is very often overlooked.
From our first job to our final job, most of us simply sign the superannuation paperwork on our first day of work and never give it another thought – but it is one of the most important savings plans of your life. Unfortunately many are losing their hard-earned super savings to fees they didn’t realise they are paying.
For this reason RateCity has introduced superannuation to help lift the super cloud and make it easier for Australians to compare superannuation funds and help make better choices about their financial future.
What to consider when choosing a superannuation fund
1. What is superannuation?
2. What is a superannuation guarantee?
3. How to get a superannuation government co-contribution
4. What is MySuper?
5. What to look for in a superannuation fund
6. How to find your lost super
7. How to consolidate your superannuation funds
8. What are superannuation Star Ratings?
1. What is Superannuation?
When you land your first job it’s not uncommon to be handed a superannuation form to sign, with no explanation of what you are signing up for. Many of us understand superannuation in its most basic form; a financial contribution that we cannot touch until retirement or pension eligibility age. But in order to retire comfortably, more Australians should be making an effort to understand super, contributions, benefits and the fees that could be eating away at your retirement savings.
So what is super? The Australians superannuation scheme was employed as a kind of forced savings plans so that Aussies leaving the workforce will be able to retire with enough money in the bank to support themselves for the latter part of their lives.
Currently all employees aged 18-years and over and earn a salary of $450 or more per month, before tax, receive superannuation contributions from their employers. The super contribution is deposited into a selected superannuation fund by your employer and is an agreed percentage of your wage.
While this responsibility falls on your employers’ behalf you can also contribute extra money into your fund and choose which super fund you’d like to invest your money in. Speak to your employer about a salary sacrifice if you would like them to take additional money out of your salary to be contributed into your superannuation fund.
There are hundreds of banks and specialist superannuation funds to choose from but usually your employer will recommend the company’s chosen fund. In most cases you are free to use their super fund or to select your own – so don’t be afraid to look around for a better option for your super and notify your employer if you’d like to use a different fund.
When considering types of superannuation funds you should take your age into account. If you are only a few years away from pension eligibility age, a conservative fund may suit you. But if you are just starting out in the work force you may be happy to take more risk to see how quickly you could grow your superannuation and choose a more aggressive super fund – also known as a growth option.
2. What is a superannuation guarantee?
A superannuation guarantee is a mandatory contribution employers are legally required to pay towards your elected superannuation fund. Your employer is required to pay a percentage of you salary to your super fund – the amount of which is determined by the government. The percentage of your salary that is committed to your superannuation could differ if you come under an employment awards so always check with your employer so you know how much they are contributing. When you take on a new role make sure you check if the salary being offered to you does include superannuation or if it’s your salary – plus super.
Ultimately, superannuation guarantees are put in place to assist Australians in saving for retirement. This could be far from your mind right now but it will have a significant impact on your financial health and quality of life in the future.
3. How to get a superannuation government co-contribution?
If you are interested in maximising your superannuation $$$ consider investing the help of the government.
As encouragement to plan ahead for the days when you can no longer earn an income, the government offers superannuation co-contributions. It works like this, if you personally contribute an after tax contribution to your superannuation fund, the government will match it with half of every dollar you contribute. To receive the tax-free gift of money into your super fund there are a few key terms and conditions you need to meet;
Contribute yourself – To qualify for the superannuation co-contribution you must make an after-tax contribution to your super fund. If you meet the Federal? Government’s income threshold, the Government will pay you half (50 cents) of every dollar you dollar that you contribute. The Government contribution is currently capped at $500.
Salary sacrificing doesn’t count – The Government will only contribute if you make personal, after-tax contributions from your take-home pay. So this does not include your employer’s contributions or salary sacrifice agreements.
Eligibility – The current Government contribution scheme comes with a few eligibility requirements; such as income minimums, age restrictions and employer contribution agreements. Visit the Australian Government Taxation Office to see if you are eligible for super co-contributions.
4. What is My Super?
MySuper is a default superannuation account that many super funds now offer. When you start a new job and don’t select a superannuation fund your employer can chose a default super account of their choosing. MySuper will eventually replace all existing default super accounts offered by super funds Australia-wide.
What are the benefits of a MySuper default superannuation fund?
In most cases it will offer lower super fees by restricting the type of fees you can be charged. This means more money going into your retirement account.
MySuper will offer simpler features – eliminating unnecessary fees for services you don’t need.
It offers investment options based on your life stage by moving your money into growth investments when you’re younger and into more conservative investments as you transition to retirement to manage risk.
5. What to look for in a superannuation fund
When you accept a new role your employer will offer you the option of selecting your own superannuation fund. If you don’t elect your own super fund then your employer could put your super contributions into their company’s superannuation fund or into a default super fund designated by an industrial award. The problem here can be the fees! If you have moved around in your career and changed superannuation funds each time without transferring you existing balance to the new fund you will be incurring fees on each one – instead of just one. These fees can really stack up and eat away at your retirement money.
But if you are like many Australians you may not know, or care, a great deal about superannuation. So just how do you tell a great super fund from a mediocre one?
There are a few things to consider when choosing a superannuation fund but the top three to look out for are:
All superannuation funds charge fees for their services. So if you have six super funds you will be incurring fees from all six of them – which could account for a great loss over time.
Pay attention, superannuation fees are not insignificant. It’s important to compare super fees to make sure you are getting the best opportunity to save as much as you can for retirement. In general the fees you could incur are;
Member fees – These are general administration fees.
Investment fee – This fee is charged to manage your super investments and will vary depending on the investment options.
Insurance premiums – This covers the cost of the insurance covered by your super fund.
Contribution fees – If you choose to invest your own contribution to your super fund you could be charged a small fee to do so.
Advisor fees – If you require advice from a superannuation advisor about investing your super you may be charged a fee, and possibly commission, for their time.
Calculated fee – The calculated fee listed on the RateCity superannuation page is a SuperRatings calculation that has taken into account all the fees across each super fund and wrapped it all into one to give you a better idea of exactly how much you are paying. The calculated fee calculates the lowest average fees payable on a $50,000 account balance for public offer funds.
When looking at any kind of investment you should look at the returns over the long-term. The performance of a superannuation funds will give you an indication of how your money will perform if you are investing your contributions over time. When looking at performance figures, it is important to remember that past performance is not a reliable indicator of future performance.
Despite it not being common knowledge, most employers default superannuation funds come with a minimum level of life insurance but some also offer total and permanent disability (TPD) insurance and income protection insurance, to boot.
By having these insurances under your superannuation fund you could save money and have peace of mind knowing you’re covered in the event of an accident, disability, job loss or death. So always look at insurance cover when considering which superannuation fund to go with. Not sure what’s covered? Check out the super funds product disclosure statement (PDS). It is important to look at what is excluded, just as much as what is included.
Now you know what to look out for you can visit our superannuation page and start comparing superannuation funds.
6. How to find your lost superannuation
Sometimes it’s hard to keep track of your superannuation funds – especially if you have held a few jobs. But keeping track is particularly important if you don’t want to lose money in accumulated fees and charges. The tricky part is finding your old super funds, but we can help you with that.
The Australian Taxation Office (ATO) has an online SuperSeeker tool that will allow you to track down your lost superannuation funds.
Simply phone the ATO on 13 10 20 or register online for a myGov account in order to carry out a search by typing in your name, date of birth and tax files number. If you do have some long-lost super out there they will track it down for you so that you can consolidate your super funds and stop paying additional fees.
7. How to consolidate your superannuation funds
Once you have located your lost superannuation funds through the ATO’s SuperSeeker tool the next step is to start consolidating your super funds, which could save you hundreds and thousands in the long-run – so it’s worth it!
First, decide which super fund you wish to roll all your other super contributions into. Start a superannuation comparison and compare fees, fund performance and insurance to find a great super fund that’s going to set you up for retirement. Make sure you check if your existing funds have an exit fee and take that into account when considering switching funds.
Second, make sure that your employer can make super contributions to your new superannuation fund.
Finally, download a NAT 71223 form, or rollover initiation request, from the Australian Taxation Office (ATO) website. There may be different forms for different superannuation rollovers so do some reading onsite before you print off and fill out your rollover details. You will need to print out a separate form for each super fund you want to rollover.
8. What are Superannuation Star Ratings?
SuperRatings run a comprehensive analysis of over 300 superannuation products and assign each one with a rating according to their ‘value for money’ rating methodology. The best “Value for Money” super funds are platinum rated, followed by gold and silver.
SuperRatings advises that the lower rates do not mean that a certain fund is unsuitable for investment. Rather, that the same or similar features offered by the lower rated funds may be offered in a more efficient environment.
Please read the SuperRating descriptions below to help you assess each superannuation funds offerings.
The best value for money funds: well-balanced across all key assessment criteria – investment returns, investment methodology, fees, administration, and advisory services in a robust, secure and proven governance/risk framework. Provides features that should assist most individuals to meet their retirement goals.
A good value for money superannuation fund: strong in nearly all assessment areas.
A reasonable value for money fund: performing well in most assessment areas.
Other rated funds frequently have many competitors that offer superior performances and structures in a more efficient environment. Blue rate funds usually fall below average in many of our assessment criteria.
For more information on the SuperRatings methodology please visit SuperRatings.