Now Labor has signalled it will back the Liberal’s superannuation changes, time to examine which super is right for you. Here’s a quick guide.
Anyone can be forgiven for being bamboozled by the variety of choice in superannuation product.
This is one consequence of having an industry grow to the point where it has a total retirement savings pool of just over $2 trillion.
That builds scale and competition, which in turn creates a diversity of products and funds.
The point is, and most advisers will agree with this, that different kinds of super products suit people at different points in their lives.
When you are in your 20s, for example, you are too busy living and having fun to think about anything as dull as superannuation, and yet it is there, ticking away in the background, accumulating money for you.
When you get a bit older and start staring down the barrel of retirement, that is when the “super gene” starts to kick and, all of a sudden, it can become vitally important and a key financial priority.
Superannuation can be divided into three categories: industry super, retail super, and self managed. If you are a public servant you will automatically have an account in a public sector fund, but for the rest of us there are three main choices.
- Industry funds. These are member based funds which had their origin in the union movement of the 1980s, when they were formed to look after particular professions. Today, just about all industry funds are “open offer” and anyone can join. Industry funds are the third largest segment in the super industry, with total assets of $466 billion as at September 2016. Their appeal is their member focus, low fees and costs, their access to cheaper life insurance and income protection products, and also – in many cases – their performance.
- Retail funds. The second largest super segment with assets of $545 billion, these are super funds offered by banks, insurers and wealth management businesses. The Big Four banks offer retail funds, but under different brand such as BT (Westpac), Colonial First State (CBA), MLC (NAB) and OnePath (ANZ). Retail funds offer a wide range of options, with funds numbering in the hundreds. This segment has moved to a lower fee structure in recent years, but in general fees are tied to a percentage of the balance.
- Self-Managed. This segment has come from a low base to be the most popular, with total assets of $624 billion. SMSFs can have as many as four members, and appeal to people who want to feel more in control of their retirement savings. Because SMSF’s have one-off set up fees and require ongoing administration, many advisers believe that a minimum seeing balance in the range of $250,000 to $350,000 is generally advisable.
So in choosing a super fund, here’s a few questions you could ask yourself. Of course, if you go to a financial adviser they will give you advice particular for your situation and life stage, but let’s make a start with these basic questions.
- What is my risk appetite? In many cases this will depend at what life stage you are. You can afford to be more aggressive and take on more risk with investments in your 30s and 40s, for example, than you can in your 50s, when it will be more about preserving capital. Both industry and retail funds offer products with different risk settings which acknowledge this major difference.
- How much control do I really want to have? If you are a control freak and love investing, an SMSF could be perfect for you, because you get to make all the investment decisions yourself. In an industry or retail fund, these decisions will be made on your behalf by a fund manager. However, in recent years industry funds have responded to this by offering new products. You can select and manage your own portfolio of Australian share, for example, within some industry super accounts.
- Do I want to “set and forget” my super. If the answer is yes, you can put your trust in either a retail or an industry fund, and you’ll simply get your annual statements. What could be easier than that?
- Are you self employed or a small business person? If so, there are some opportunities and advantages in the self-managed structure. It might be a good idea to have a conversation with an adviser about whether it might be suitable for you.
The other point about selecting a fund is that it is possible to have multiple accounts, and change strategy as they get older.
There are many examples of people who are in industry funds for their working lives, and who set up a SMSF to manage their money in retirement.
Many people have also taken advantage of lower life insurance premiums offered by an industry fund, and maintain both an industry fund and a SMSF.
Or there might be a particular retail fund which is “shooting the lights out” in terms of performance.
It’s easy enough to allocate some funds to this investment, while keeping your others as well.