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Investing basics: 3 easy steps to sort your super

Emma Rapaport  |  14 Dec 2018Text size  Decrease  Increase  |  
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Superannuation. It's one of those things that sits on your to-do-list but seldom gets done. And to be honest it's not your fault. Retirement saving is all about delayed gratification – locking away money now to enjoy in your latter years. No wonder you don't feel engaged.

But super is one of those decisions we make when we're young which arguably have a big impact on the rest of your life.

So now is the time to bite the bullet: sit down on the couch with a cup of tea – or glass of wine, open up your computer and follow these three simple steps:

  1. Find your super – and consolidate
  2. Choose the right fund for you
  3. Get to know your fund

Relaxing by the fire

Step 1: Find your super

Many people have no idea if they have a super. And if they do, they most likely don't know which fund they're with. In fact, more than 40 per cent of Australians have a multiple superannuation accounts which are collectively costing us more than $1.96 billion in fees each year, according to consumer advocate Choice – fees which may well be unnecessary.

If you're over 18 and have ever had a job earning more than $450 a month before tax then most likely you have some superannuation savings. Legally your employer must pay 9.5 per cent of the value of your earnings into a super fund of your choice.

MyGov and the ATO have made it simple for you to discover how many super accounts your hold and consolidate. And if you see more than one account listed, consider transferring all your savings into one fund. This will help stop multiple fund fees from eating into your retirement savings.

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And the next time you start a new job and receive a superannuation form, remember to write in the name of your existing fund rather than defaulting to your employers’.

Tip: make sure you give your super fund your tax file number when you join so you can be taxed at the right rate

Step 2: Choose the right fund for you

ASIC got it right when they said choosing a super fund is a bit like dating: Pick the right fund and you'll be set for a long, happy and comfortable life when you retire. Set your sights on the wrong one and you're in for a world of pain.

Some savers will want to go for the fund which represent the industry you work in, like CBUS for the construction and building industry and HESTA for health and community service workers. Industry funds are 'not for profit' funds meaning that profits are retained in the fund for the benefit of members.

Others will opt for a retail fund run by a bank or investment company, which typically have more investment options and can be linked to an everyday banking mobile app.

Public sector funds are for government employees, corporate funds are arranged by an employer for its employees, and self-managed super funds are a personal super fund that you invest yourself.

What to look for when choosing a fund:

Fees – how much the fund charges to manage your savings

Performance – funds are not created equal

Investment options – does the fund offer account options which suit your needs?

Insurance – does the fund offer cover and what will it cost?

Other nice-to-have options:

A mobile app – to keep track of super

A MySuper account option

An ethical investing option

Some employees are covered by industrial agreement can't choose your own fund, everyone else should shop around for the best provider. Check with your employer for more information.  

Step 3: Look deeper – getting to know your fund

Understanding fees

Superannuation funds charge you a variety of fees for managing and investing your savings. Understanding exactly how much you're paying is important as fees can have a substantial impact on your long-term returns.

The main fees charged are administration fees – typically charged as a yearly, and investment management fees – typically charged as a percentage based on your balance.

Other fees include exit fees charged on withdrawals, switching fees for moving between investment options, other indirect costs paid by your fund to external providers, performance fees, insurance premiums, and fees for financial advice.

Research from Canstar shows that a person with a balance of $80,000 pays average fees of $838 - $450 being the low and $2,322 the high.

Checking performance

The money which you put into your fund doesn't just sit there like a normal savings account. A team of investment professionals invest members money on your behalf. Regularly checking in on how your super fund is performing can make a big difference to your income in retirement.

Don't review a fund's investment performance in isolation. Just because your fund did well one year, doesn't mean they'll do well the next. Look at your fund’s performance over five, 10, 25 years, and use those figures to compare your fund against others. 

Morningstar data shows the average balanced-option fund returned an average of 7.6 per cent a year, after fees, for the 25-year period to 30 June 2017.

If your investment option has performed consistently badly after fees and taxes, relative to other comparable options over a five-year period, then you should consider switching funds.

Investment options

When you choose a fund, your savings will automatically be placed in the default product – typically a balanced option.

If you're young with many decades separating you and retirement, you may want to consider allocating your funds to a product with a higher allocation to growth assets such as local and international shares. It's important that you revisit this decision as you get closer to retirement.

Tip: seek out a fund which is MySuper authorised. MySuper accounts are those which offer low fees, simple features and a single diversified investment or lifecycle option. They're not for everyone but are great for those who seek simplicity.

Review your insurance

When you register for a super account, your fund will automatically provide you with basic insurance – life insurance, total permanent and disability insurance, and depending on the fund, income protection insurance. This insurance isn't free and premiums will be deducted from your account.

Ensure you have the right level of cover for your circumstances. And again, compare funds to see if you're paying a reasonable rate for the product.



More in this series

• Investing basics: what is the time value of money?

• Investing basics: your guide to diversification

Investing basics: 5 questions to ask before investing in funds

is the editorial manager for Morningstar Australia. Connect with Emma on Twitter @rap_reports. You can email Morningstar's editorial team editorialAU[at]morningstar[dot]com

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