14 Apr 5 Things To Look For In A Super Fund
Superannuation is complex and changes regularly. Therefore many individuals do not have a clear understanding of the key principles behind it. The vast majority of working Australians and retirees have superannuation savings, which is a substantial asset to help fund retirement.
It is incredibly important to have an understanding of the main concepts of your super fund, as it is a pivotal part of retirement planning. Identifying and having knowledge of these concepts will ensure that you have chosen a super fund that is suited to your personal circumstances. The following are 5 things to look for in a superannuation fund.
Different Types Of Super Funds
There are various types of funds available to Australians. Most Australians have the ability to choose which super fund they want to use. Some professions including certain public sector employees, individuals who have a workplace agreement or members of defined benefit schemes generally won’t have the ability to choose.
Those individuals who don’t fall into this category and don’t choose their own fund will be provided with a ‘default’ fund known as a MySuper account. MySuper products have simple features that often have default options for investment and insurance. Therefore it is worth reviewing the type of super fund you have to make sure that it is appropriate for your needs in retirement. Below are the main types of super funds available in the Australian market:
Industry Super Funds
Initially established to provide specialist super funds for employees and businesses working within specific industries such as hospitality, health and building. The majority of these funds have now become available to individuals who operate outside of the industries that created them.
Retail Super Funds
Also known as public offer funds, this type of fund is usually offered by fund managers or other financial institutions. This is the most common type of superannuation account offered to the general public. These funds are flexible enough to cater for members throughout their lifetimes. They provide a range of options and membership categories to meet the needs of members throughout the different stages of their lives and into retirement.
Corporate Super Funds
Large employers may run their own funds for their employees, which are generally not available to members of the general public. These companies may be able to provide lower fees and offer various other benefits that otherwise would not be available to employees who choose their own fund.
Self-managed Super Funds
This type of fund includes you managing your own super fund. They are regulated by the ATO and you are a Trustee of the fund and responsible for the ongoing management. This includes documenting the fund strategy, making and managing investment decisions and administering the fund. Self managed super funds allow you to gain access to a broader range of investment options. They are incredibly complex and you may like to consult a financial service provider for SMSF advice.
Super funds charge fees for different elements of your account. These fees include:
This could either be a fixed amount of a percentage of your investment in the fund. This is used to pay for the operational costs and administration of your fund.
These are fees charged by the fund investment manager to manage your superannuation investments or to purchase investments.
You may be paying an adviser for any financial advice you receive in relation to your investments through your super fund.
You may like to establish the fees before you select a superannuation account to make sure that it offers long term sustainability into your retirement.
There are benefits to holding insurance within your super fund including the fact that insurance premiums may be deductible to the super fund. Tax deductibility means that the net cost of your premiums will be reduced. Many superannuation funds offer the following insurance options:
- Life Insurance Cover
- Total & Permanent Disablement Insurance
- Income Protection
Reviewing your investment options and understanding where your money is being invested can have a significant impact when it comes to your retirement. Your investment option should reflect your investment needs and goals, including the risks you are willing to take with your portfolio. Your superannuation is not itself an investment but the vessel to hold your investments. Investment performance is determined by the type of asset class invested in and not superannuation itself.
There are two phases of super, which are the accumulation phase and the pension phase. If an individual is still working their superannuation would be in the accumulation phase. When an individual begins to draw an income from their super the pension phase commences.
Any investment income in the accumulation phase is also included in the assessable income of the super fund and is subject to tax. Super funds receive a tax discount on capital gains when the asset is held for longer than 12 months.
In the pension phase the tax rate is zero on any investment income earned on assets that are used to support the super pension. There is a maximum amount that a person can hold within a super account, capped at 1.6 million as of 2021/21. Excess amounts must be either held in a super account and taxed at 15% or invested outside of super.
There are plenty of considerations to make in regards to superannuation. The type of fund, fees, insurance, investment options and taxation should all be reviewed when selecting the optimum super account for your personal needs. Having an understanding of the key elements of superannuation will be beneficial as you approach retirement to sustain your ideal standard of living within retirement.
For more information or specific advice regarding superannuation and to ensure it is working optimally, you may like to consult Ethica Wealth Specialists. We are highly skilled in building wealth for your retirement.