DIY super making money for the wealthy, leading to losses for battlers

DIY super making money for the wealthy, leading to losses for battlers

Australians wanting to take a “do it yourself” approach to their superannuation may be better served by a self-managed super fund (SMSF) if they already have healthy retirement savings available, while those with smaller super balances may not get the best returns from a SMSF, according to a new report.

The Industry Super Australia (ISA) paper, ATO self-managed super funds: a statistical overview 2015-2016, found that while Australians with $2 million or more in retirement assets have enjoyed healthy returns from their SMSFs in the past, those with lower-value assets received smaller, or even negative returns on their retirement investment.

SMSFs annualised return by asset range (2016)

Super assets 3 years 5 years 8 years % of entities by fund size % of assets by fund size
$1-$50k -9.8% -13.1% -13.0% 5.6% 0.1%
$50k-$100k -3.2% -5.0% -5.4% 3.7% 0.3%
$100k-$200k -0.5% -1.3% -1.8% 8.6% 1.1%
$200k-$500k 2.0% 1.9% 1.2% 24.0% 7.4%
$500k-$1m 3.2% 3.7% 2.9% 24.8% 15.8%
$1m-$2m 3.9% 4.5% 3.8% 19.0% 23.6%
$2m+ 5.1% 5.6% 5.1% 14.3% 51.7%

Source: ISA

While past performance is not a reliable indicator of future performance, the ISA found that even SMSFs earning positive returns over 2015-2016 did so at a rate below the 2016 APRA-regulated fund average (2.9%) and industry super fund average (4.1%) for assets lower than $2 million.

ISA chief economist, Dr Stephen Anthony, said that based on this data, while SMSFs may work for sophisticated, high wealth individuals, they may be less suitable for everyday Australians, and not just because of the lower average returns:

“The administration costs of running an SMSF with a small balance are often too high.”

“It’s important to know how your super fund stacks up on fees and net returns – otherwise you could be in for an unpleasant surprise.” – Dr Stephen Anthony

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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.

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.

What fees do superannuation funds charge?

Superannuation funds can charge a range of fees, including:

  • Activity-based fees – for specific, irregular services, such as splitting an account after a divorce
  • Administration fees – to cover the cost of managing your account
  • Advice fees – for personal investment advice
  • Buy/sell spread fees – when you make contributions, switches and withdrawals
  • Exit fees – when you close your account
  • Investment fees – to cover the cost of managing your investments
  • Switching fees – when you choose a new investment option within the same fund

Can my employer use money from my superannuation account?

No, your employer can’t touch the money that is paid into your superannuation account.

What are my superannuation obligations if I'm an employer?

Employers are required to pay superannuation to all their staff if the staff are:

  • Over 18 and earn more than $450 before tax in a calendar month
  • Under 18, work more than 30 hours per week and earn more than $450 before tax in a calendar month

This applies even if the staff are casual employees, part-time employees, contractors (provided the contract is mainly for their labour) or temporary residents.

How is superannuation calculated?

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.

What happens if my employer falls behind on my superannuation payments?

The Australian Taxation Office will investigate if your employer falls behind on your superannuation payments or doesn’t pay at all. You can report your employer with this online tool.

How many superannuation funds are there?

There are more than 200 different superannuation funds.

What happens to my superannuation when I change jobs?

You can keep your superannuation fund for as long as you like, so nothing happens when you change jobs. Please note that some superannuation funds have special features for people who work with certain employers, so these features may no longer be available if you change jobs.

How do I choose the right superannuation fund?

Different superannuation funds charge different fees, offer different insurances, offer different investment options and have different performance histories.

So you need to ask yourself these four questions when comparing superannuation funds:

  • How many fees would I have to pay and what would they cost?
  • What insurances are available and how much would they cost?
  • What investment options does it offer? How would they match my risk profile and financial needs?
  • How have these investment options performed historically?

How much is superannuation in Australia?

Superannuation in Australia is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent 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.

How does superannuation affect the age pension?

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.

What happens to my insurance cover if I change superannuation funds?

Some superannuation funds will allow you to transfer your insurance cover, without interruption, if you switch. However, others won’t. So it’s important you check before changing funds.

How do you get superannuation?

You’re automatically entitled to superannuation if:

  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month