“It’s the most significant financial asset most Australians will ever have. It determines our quality of life in retirement – which with rising life expectancy is an ever greater proportion of our lives. And you only get one shot at it – if you make the wrong decisions early on, they can be very hard to undo.” CHOICE CEO Alan Kirkland hit the nail squarely on the head when he made this statement about superannuation.
Despite the significance for Australians, the $2.65 trillion* in superannuation assets and growing rapidly thanks to the 9.5% compulsory yearly contributions, many consumers still think of superannuation as boring or complicated and so choose to not think about it at all.
With hundreds of funds to choose from and Governments tinkering with the rules, it’s not surprising superannuation ends up in the too-hard-basket. So let’s uncomplicate it!
We mentioned many consumers think of superannuation as boring. You’re obviously not the average, thanks for reading this far. If you can stick with us to the end, you’ll hopefully gain some insight and find superannuation can be interesting (although we won’t promise you’ll love superannuation as much as we do?)!
Superannuation funds are simply a structure (much like a company or family trust) set up for the purpose of helping us save for our retirement. In the interest of protecting members and helping grow our retirement pots, there are some rules in place about how these funds must be managed and around the who, when and how of making contributions and later withdrawals. Arguably the most exciting rule in place is the low tax rates afforded to superannuation funds with investments within superannuation being taxed at a maximum 15%!
What do you want for your retirement? What floats your boat? Tinnies in a tinnie or sunsets from a yacht? The retirement dream looks different to each individual. So, when it comes to superannuation, that too will look different for each individual.
Most of us have three choices when it comes to our superannuation: industry fund; retail fund; or self managed super fund.
Self managed super is a whole exciting topic on its own. For today, let’s just start with industry vs retail super funds.
Industry superannuation funds were established by trade union and industry bodies to provide for their members in retirement and run as ‘not for profit’. They typically included some default insurance cover for members. Some of the most well known industry funds include:
Historically, industry funds were cheap and paid no commissions to advisers but had very limited investment choices, if any. There was also a huge lack of transparency, with an attitude of you don’t need to know or see what we’re doing with your money, just trust us.
Retail superannuation funds were originally established by insurance companies and financial institutions for those of who were interested in taking more control over their superannuation investments and actively managing their retirement savings. They offered a personalised service and investment expertise and charged commissions for this service. Insurance isn’t offered as a one-size-fits-all default but, rather, up to each member, if required, to apply for cover tailored to their specific needs. You may have heard of some retail funds, for example:
AMP Flexible Super
BT Super For Life
MLC Masterkey Super
Colonial First State FirstChoice Super
Suncorp Everyday Super
So, which super fund fits you?
The divide between industry and retail super funds has reduced significantly in recent years, you really have to look hard to spot the differences. Industry funds are offering more investment choices and transparency, retail funds have become cheaper and commissions are now banned.
Which one fits you comes down to your specific needs and what is important for you.
Do you wish to tailor your insurance? Retail funds still have the edge here. Most people are surprised to find out you can have a better policy, often at a lower cost, by properly tailoring and structuring your insurance within a retail fund than the default or “tailored” cover offered by industry super funds.
Do you wish to invest in direct shares? Industry super funds have vastly improved their investment offerings but many retail funds still have a greater range investment options and tailored offerings.
Are you looking for personalised advice? This no longer has anything to do with whether you choose an industry or retail super fund, it’s all about looking at the adviser. How do they get paid? Are they employed by the super fund (or bank that issues the super product) or are they unrelated and therefore able to provide you with unconflicted advice? In the interest of full disclosure, Power2 is not owned by or tied to any industry or retail super funds. You can therefore say we’re biased towards those advisers that are? We get paid by our clients. We can and do recommend both industry super and retail super funds depending on what is most appropriate for the individual.
Deciding on a super fund can seem complex and boring but it can be simplified with the right advice. Click here for a no obligation discussion about your situation.
* APRA statistics 31 December 2018
Information provided is general advice only and does not take into account your personal objectives, financial situation or needs. Before acting on this information you should consider the appropriateness of the information having regard for your own circumstances, personal objectives, financial situation and needs. When deciding whether to acquire or continue to hold a financial product(s), you should first obtain and consider the Product Disclosure Statement(s), Information Statement(s) and/or other relevant product documentation relating to that product(s).
Financial Planning services provided as Authorised Representatives of Power 2 Financial Services Pty Ltd ABN 51 164 747 595 Australian Financial Services Licence No. 444078
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