Superannuation (also known as ‘super’) is a compulsory savings scheme through which some of your income is set aside so you can have a nest egg waiting for you when you retire.
If you don't have an existing super fund account when you start a new job, and don't nominate a new one yourself, your employer must pay your super contributions into a default fund. These funds are legally required to offer MySuper investment options.
What is MySuper?
MySuper is a government initiative that replaced the previous default funds system in order to provide lower cost, more simplified alternatives. Since July 2017, all member accounts in default investment options will be required to be invested in MySuper products.
If you already have an account with a super fund your employer will put your SG contributions into your existing ‘stapled’ fund. As the name implies, a stapled super fund is linked to an individual employee so that when you change jobs, there’s no need to open another super account.
If you don’t have an existing account with a super fund or nominate a specific fund, your employer will deposit your super into a MySuper account in your name. The account may be chosen by your employer or be part of an industry agreement.
Retail, industry and corporate funds can all offer MySuper accounts for individuals in the accumulation phase (pre-retirement). However, defined benefit funds (funds that provide payouts according to specific rules) and super pension accounts for retirees aren’t able to offer MySuper products.
What are the features of MySuper?
Financial resource website MoneySmart, created by the Australian Securities and Investments Commission (ASIC), states that MySuper products typically offer:
- low fees
- simple features - so you don't pay for services you don't need
- either a 'single diversified' or a 'lifecycle' investment option
Members can see an overview of their MySuper account via an online product dashboard that offers information on five key areas concerning their superannuation investments. These include:
- the return target
- the returns for previous financial years
- a comparison between the return target and the returns for previous financial years
- the level of investment risk; and
- a statement of fees and other costs
What are MySuper’s investment options?
There are two primary investment options for MySuper accounts. When selecting which approach you’ll take you may want to consider factors such as your age, how comfortable you are with the risk strategy, and how long before you’ll be able to access your funds.
Single diversified investment option
The majority of MySuper accounts employ this strategy. Your super fund spreads your money over a standard mix of investments, and the investment approach remains the same for your entire life. These funds generally take a balanced or growth approach.
Lifecycle investment strategy
This is where a fund will typically focus on higher-risk growth investments - such as shares and property - when you're young and more conservative investments - such as bonds, cash and term deposits - when you're older. This option aims to reduce the individual's risk over time and requires less personal management.
A life stage investment option means your super fund can automatically modify your investment portfolio based on where you fit within predetermined age brackets. The asset allocation changes as you move from one bracket to the next. Some of the typical age brackets include:
- under 45
- and 65 and over
What are the fees for MySuper accounts?
MySuper funds must disclose all fees they charge. Fees a member can be charged for MySuper products are limited to the cost of providing a particular service. These may include:
- administration fees
- investment fees (including a performance-based fee)
- buy and sell spreads (limited to cost recovery)
- exit fees (limited to cost recovery); and
- switching fees (limited to cost recovery)
RateCity has crunched the numbers to reveal the minimum, maximum and average super fees paid by Australians.
What are insurance costs for MySuper?
MySuper products are required to offer standard life and total and permanent disability (TPD) insurance. Some funds allow members to increase or decrease their level of cover. You can also choose to opt-out of receiving this basic insurance.
For members under the age of 25, or those with a balance below $6,000, insurance coverage is offered on an opt-in basis to negate the issue of fees eroding low balances.
The actual costs will vary between super funds but should be clear and visible to all members.
What else should you know?
Different super funds offer different investment options to help you grow your retirement savings. There are also extra features, benefits, fees and charges to consider. Comparing different super funds can help you choose a fund that best suits your financial situation.
Consider making a habit out of checking your super fund to ensure payments are being made correctly and assess whether your investment options are reflective of your preferences and where you’re at in your career or life stage.