Time to change your super? Quite possibly…

Time to change your super? Quite possibly…

Here’s a scary stat: making the wrong choice with your superannuation could cost you more than $100,000 in retirement savings.

That’s the finding from new RateCity research into superannuation, which compares 40-year performance scenarios based on different fees and investment options.

We know super is hard. There are so many variables to get your head around. So how do you know which is the best fund and the best investment option for you?

To help you out, we’ve used the ASIC superannuation calculator to research different scenarios.

Industry funds v retail funds

Industry super funds are not-for-profit funds, while retail funds are for-profit funds. Industry funds have a higher customer satisfaction rating (62.1% v 55.7%), according to a new report from Roy Morgan Research.

Those small fees can make a big difference

First, we’re going to compare the impact of fees, ranging from low through to high.

We’re going to make a few assumptions about you:

  • You’re 27 years old
  • You’re earning $75,000 per year (and will for the rest of your career)
  • You’re planning to work until you’re 67 (which will become the official pension qualifying age in 2023)

We’re also going to make a few assumptions about your super:

  • You’re in a ‘balanced’ fund
  • It has an investment return of 4.8% p.a. (before taxes and fees)
  • It has tax on earning of 6.5% p.a.
  • It has investment fees of 0.5% p.a.

Based on those assumptions, you’ll make $239,161 in superannuation between ages 27 and 67 if you choose the high-fee fund and $347,430 if you choose the low-fee fund.

That’s a difference of $108,269.

Fee level Contribution fee Admin fees (p.a.) Indirect cost ratio (p.a.) Final total
Low 0% $50 0% $347,430
Low-medium 0% $50 0.3% $329,563
Medium 0% $50 0.6% $312,842
Medium-high 2% $0 1.3% $273,833
High 4% $0 2% $239,161

How much do I need to retire?

To live a modest lifestyle, singles need $27,648 per year and couples need $39,775. To live a comfortable lifestyle, singles need $43,317 and couples need $60,977.

These numbers come from the ‘ASFA Retirement Standard’ for Australians aged about 65. Slightly lower numbers apply for those aged about 85.

Different investment options can also make a big difference

Now, we’re going to have a look at how different investment options can affect your nest egg.

Again, we’re going to assume you’re 27, you’re going to work until 67 and your salary is $75,000.

We’re also going to make these assumptions about your super:

  • You’re paying ‘medium’ fees
  • Your contribution fee is 0%
  • Your admin fees are $50 p.a.
  • Your indirect cost ratio is 0.6% p.a.

Based on those assumptions, you’ll make $225,132 if you choose the cash investment option and $339,074 if you choose the high-growth option – a difference of $113,942.

Investment option Investment return (p.a.) Tax on earning (p.a.) Investment fees (p.a.) Final total
High-growth 5.3% 4.1% 0.7% $339,074
Growth 5% 5.8% 0.6% $320,920
Balanced 4.8% 6.5% 0.5% $312,842
Moderate 4.4% 8.3% 0.4% $291,901
Conservative 3.8% 10.6% 0.3% $263,588
Cash 2.7% 15% 0.05% $225,132

Why wouldn’t everyone choose high-growth?

Historical averages show that high-growth investment options tend to produce better long-term returns than conservative options.

However, they also experience more volatility: they might post big gains one year and big losses the next.

Conservative options, by contrast, are less volatile, and experience both smaller gains and smaller losses.

Some people might choose conservative options because they want to reduce their risk. Others might start with growth options but then go conservative as they near retirement, to avoid losing a big chunk of super just before leaving the workforce.

How to change your super

Now that you’ve seen all those numbers, do you feel like changing your super?

If so, we’ve got you covered.

Changing your superannuation fund is simple. You can do it online through your MyGov account. Or you can fill in a rollover form and send it either to the fund you’re about to leave or the fund you’re about to join.

Whether you choose the MyGov option or the rollover form option, you’ll also have to notify your employer and complete a standard choice form.

Of course, you might want to stay with your current super fund and simply change your investment option.

Again, that is a simple process. Many funds will allow you to change options over the internet. If yours doesn’t, contact your fund and ask how to proceed.

Did you find this helpful? Why not share this news?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

Learn more about superannuation

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?

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

How do you set up superannuation?

Before you set up a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).

How do you create a superannuation account?

Before you create a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).

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 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.

What is MySuper?

MySuper accounts are basic, low-fee accounts. If you don’t nominate a superannuation fund, your employer must choose one for you that offers a MySuper account.

MySuper accounts offer two investment options:

  1. Single diversified investment strategy

Your fund assigns you a risk strategy and investment profile, which remain unchanged throughout your working life.

  1. Lifecycle investment strategy

Your fund assigns you an investment strategy based on your age, and then changes it as you get older. Younger workers are given strategies that emphasise growth assets

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.

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.

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.

What will the superannuation fund do with my money?

Your money will be invested in an investment option of your choosing.

How many superannuation funds are there?

There are more than 200 different superannuation funds.

How long after divorce can you claim superannuation?

You or your partner could be forced to surrender part of your superannuation if you divorce, just like with other assets.

You can file a claim for division of property – including superannuation – as soon as you divorce. However, the claim has to be filed within one year of the divorce.

Your superannuation could be affected even if you’re in a de facto relationship – that is, living together as a couple without being officially married.

In that case, the claim has to be filed within two years of the date of separation.

Either way, the first thing to consider is whether you’re a member of a standard, APRA-regulated superannuation fund or if you’re a member of a self-managed superannuation fund (SMSF), because different rules apply.

Standard superannuation funds

If your relationship breaks down, your superannuation savings might be divided by court order or by agreement.

The rules of the superannuation fund will dictate whether this transfer happens immediately, or in the future when the person who has to make the transfer is allowed to access the rest of their superannuation (i.e. at or near retirement).

Click here for more information.

SMSFs

If your relationship breaks down, you must continue to observe the trust deed of your SMSF.

So if you and your partner are both members of the same SMSF, neither party is allowed to use the fund to inflict ‘punishment’ – such as by excluding the other party from the decision-making process or refusing their request to roll their money into another superannuation fund.

This no-punishment rule applies even if the two parties are involved in legal proceedings.

Click here for more information.

Financial consequences

Superannuation funds often charge a fee for splitting accounts after a relationship breakdown.

Splitting superannuation can also impact the size of your total super balance and how your super is taxed.

Click here for more information.

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.