Superannuation: making the right choice
This articles explores the options to take into account before changing super funds. It suggests investigation into investment options, fees, insurance, range of services, etc, and then offers action steps for each point.
One of the best things about living in Australia is the high level of choice we have in everything from milk to superannuation funds. For many of us, having a choice of where our super will be held is an important part of our investment management and a decision that should not be made without sufficient research.
Whether you are changing employment or you’re not happy with the fund your employer offers, below are several key points to consider in selecting a super fund to meet your needs. Also listed are seven actions you can take to help yourself on the path to making the right choice for your future.
It’s your super
There is a range of options available for investing your super – retail funds, industry funds, corporate and public sector funds; or you can choose to manage your own. The choice of fund may depend on your employer or industry. Regardless, this is your money that is being invested for your future use, so it’s crucial that you take a keen interest in your superannuation.
Action 1 – Ask your employer if you can choose your own super fund.
Super is a tax-effective way to invest. Your super fund should give choices of investments – after all, one way of investing is unlikely to suit everyone. How much choice you need depends on your personal circumstances such as how much money you have in your fund, your attitude to investing, and how much involvement you wish to have in making investment decisions.
Does your fund provide suitable options? Are you invested in the most appropriate way? Your choice can make a big difference. There are generally five or six different investment options which can provide you with varying levels of exposure to each asset class. For example, a capital secure fund may invest your money predominantly in bonds and cash or interest rate products. A balanced or diversified fund on the other hand, might invest your money partly in bonds, cash and interest rate products and partly in shares and property.
Action 2 – Ask your super fund what investment choices they offer.
All super funds will charge fees in some way. The key issue is not the fees but the value provided by the fund. Like all things “you get what you pay for”. Some simple funds are cheaper but may not offer the options and facilities you need. Some funds may be too complicated or expensive for your needs.
Do you use the facilities offered by your fund? Are you paying for things you don’t need or missing opportunities from a fund that is too basic?
Action 3 – Ask your super fund what fees they charge.
If you have insurance cover via your superannuation you probably think you’re adequately covered, yet if something bad were to happen, you might be in for an unpleasant surprise – and by then it might be too late.
Many super funds provide a simple, low-cost and tax-effective way to get insurance cover in the event of death or disability but you need to determine if the current level is appropriate to you. And review the cover at each stage of your life.
Another point to remember is that a portion of your super contributions is used to pay the insurance premiums. This means that you’re not contributing as much as you believe.
What personal insurance cover do you have now? Is it too much or not enough? Is it better to pay the premiums personally or from your super fund?
Action 4 – Determine what personal insurance cover you need. Ask your super fund about what insurance is offered and do the sums. Then talk to your financial adviser.
Range of services
Super funds have become more competitive and offer a wide range of services to make it easier to keep track of your investment and tailor it to your needs.
Can you access your account online? How easy is it to make contributions or switch investments? How often does your super fund send you statements, updates or news about your fund? What education services such as seminars, online calculators and guides are available? How easy is it to speak to a human being?
Action 5 – What other services does your super fund offer?
More super choices
Your superannuation needs to provide for your future – the planned and the unexpected. For most people their super will pay an income when they retire as a pension or “retirement income stream”. When you die the super fund will pay out your super to your dependents or your estate. In some funds, you can advise or direct the fund as to how your super is paid out.
Does the fund allow binding death benefit nominations? Does the fund provide a range of pensions with suitable investment options?
Action 6 – What other important choices does your super fund offer?
Super funds have to invest, provide insurance and other services for fund members who make no choice – this is called the “default” option.
How will your money be invested if you make no choice? What insurance cover will you have?
Action 7 – If you have “chosen” the default option, will it meet your individual needs?
As you can see, choosing the right super fund is a major decision. There is a lot to consider. If it all seems too hard, give us a call and we can evaluate your options and help you make the best choice for your specific needs.
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