How To Choose A Super Fund?
Last Updated on 27 January 2024 by Ryan Oldnall
Most people ask the question “How To Choose A Superannuation Fund?”. The best answer is to understand what a super fund can provide you long term. The decision you make on your Super fund detail will impact on your later lifestyle goals and retirement plans.
A majority of Australians have a Superannuation account where mandatory payments are made from their employer on their behalf. Currently in Australia these super fund guarantees are at a minimum of 11% with further incremental rises of 50 basis points each year until July 2025, where it will reach 12%.
That means if you currently earn $100,000 per year your employer will make $10,500 worth of super contributions on your behalf currently into your nominated super fund.
Evaluating Super Costs: Are You Paying Too Much?
The costs and fees associated with your super can have a significant impact on the amount available to you at time of retirement. Different super funds have varying fee structures that contribute to your ‘yearly fees’.
For example, if you had a balance of $100,000 and your Super fees were equivalent to 1% that Super Fund would be charging you $1000 that year. This amount is not a once off fee and if you extend that over your lifetime you can see how these can accumulate over time as your own funds grow year on year.
Choosing a Super Fund: How to Switch
When choosing a superannuation fund, it is essential to meticulously assess the fund’s performance, fees, and insurance cover.
Having recently performed my own Super fund comparison. I evaluated the super fund’s performance, fees charged, and insurances I made the decision to switch super funds. I had been with my current super fund for approximately 7+ years.
In my early 20’s I had made the mistake of not looking after my super and had two funds simultaneously! This resulted in paying double the fees, and the returns from the first account were minimal due to super fees. Prioritizing low fee super funds is generally important, so having two super funds rarely makes sense.
When comparing the fees between my current and new provider, I noticed that the annual performances were similar. However, the insurance premiums and investment option costs were significantly higher in my current super fund.
I was paying $52 account keeping fee plus 0.23% administration fee on my balance each year up to a maximum of $1500 per year.
Furthermore, by investing in High Growth I was charged investment base fees of 0.34%, a 5 year average 0.36% performance fee, as well as a transaction cost of 0.08% totaling 0.78% for total investment and transaction costs. These fees are in addition to the admin fees above and do not include my insurances held within the super fund.
To assist with comparing super funds, you can use tools like Chant West AppleCheck, which provides a side-by-side comparison.
However, it’s important to note that this scenario is for demonstration purposes only, and you should verify this information against your own circumstances. Seeking professional guidance is advisable when making such decisions.
-
- 35 year old male, non-smoker working as a ‘professional’.
- Super balance of $100,000
- Insurances:
- Death – $400,000
- Income Protection – $85,000
- TPD – $60,000
|
Super Fund Comparison |
Australian Super |
Aware Super |
Differences |
|
Administration Fee % |
0.10% |
0.23% |
0.13% |
|
Administration Fee Cost |
$152 |
$238 |
-$86 |
|
Investment Fee & Transaction % |
0.69% |
0.78% |
0.09% |
|
Investment Fee Costs |
$640 |
$780 |
-$140 |
|
Death and TPD |
$140 |
$155 |
-$15 |
|
Income Protection |
$140 |
$158 |
-$18 |
|
Annual Total difference in Fees charged as a percentages |
22% |
Annual Total Difference in Fees charged in Dollars |
-$259 |
Income in Retirement Years: Planning for Financial Stability
The income retirees utilize in their retirement has gradually shifted over time with the introduction of superannuation being made compulsory in 1991-1992.
The government introduced these changes to address the ageing population at the time and in the hopes of making people less reliant on the aged pension later in life.
As Australians are enjoying longer lifespans, it has become crucial for individuals to ensure they have sufficient funds to support their chosen retirement age and desired lifestyle. According to the Australian Bureau of Statistics (ABS) it , the average Australian is living longer.
Super Consumers Australia advises that in order for an individual or couple to maintain a fortnightly income of $1,692 or $2,642, respectively, they would need to have accumulated $301,000 or $402,000 in their superannuation funds by the age of 65.
These figures underscore the importance of diligent financial planning and saving for retirement in order to secure a comfortable and fulfilling future.
It’s important to note that these figures assume that individuals are not renting or making home loan repayments. For further information regarding Super Consumers Australia retirement spending levels and savings targets read their 2022 Super Consumers Australia consultative report.
Savings Targets for Pre-Retirees (Aged 55-59)
|
|
How much you’d like to spend in retirement Per Fortnight |
How much you’d like to spend in retirement Per Year |
Amount required in Super by the time you reach 65, in addition to the Age Pension |
|
Single |
$1,308 (Low) |
$34,000 |
$88,000 |
|
Single |
$1,692 (Medium) |
$44,000 |
$301,000 |
|
Single |
$2,115 (High) |
$55,000 |
$745,000 |
|
Couple |
$1,846 (Low) |
$48,000 |
$111,000 |
|
Couple |
$2,462 (Medium) |
$64,000 |
$402,000 |
|
Couple |
$3,115 (High) |
$81,000 |
$1,003,000 |
Source: Super Consumers Retirement Targets
Summary
Proactive retirement planning, including maximising contributions to superannuation, investing wisely, and managing expenses, can help individuals achieve their desired retirement income and maintain financial stability.
Consulting with financial advisors and utilizing resources such as government retirement calculators can provide valuable guidance in setting realistic savings targets and creating a comprehensive retirement plan.
Remember, everyone’s circumstances are unique, and it’s essential to tailor retirement strategies to individual needs and financial goals. By being proactive and informed, individuals can work towards securing a comfortable retirement and enjoying the lifestyle they envision.
