Confused About Superannuation or Super Funds? This Guide Will Help You

  • Nov 07, 2019 AEDT
  • Team Kalkine
Confused About Superannuation or Super Funds? This Guide Will Help You

Often, people are confused about the concept of superannuation and its relevance with super funds. Let us demystify the translucent picture of superannuation and super funds. We shall also discuss the key areas to focus on for choosing top super funds in Australia later.

Individuals who are aware of personal finance management tend to lay greater emphasis on superannuation and super funds as compared to the individuals ignorant of personal finance management.

Definition of Superannuation

Many organisations provide benefits to their employees at the time of retirement by providing them with various pension programs while they are on the job. The organisations consider providing such benefits as a result of legal compliance or willingly to retain employees for a longer period. Superannuation or investment in super funds is one such retirement or pension benefit offered by the organisations to their employees.

A superannuation is also referred to as a pension plan or retirement benefit plan since it is a general trend that employees utilise money after retirement or as a pension. However, there are other retirement benefit schemes and plans which are commonly opted for, such as provident fund, gratuity, Australian Pension System etc.

In current times of broadening choice for superannuation, there are several retirement schemes and funds based on the investment mechanism, where the fund money is invested in the market for realising returns. The major advantage of the non-investment mechanism-based superannuation is that the employee receives benefits according to a set schedule and not by the performance of the investment.

Benefits of Superannuation

A superannuation can yield numerous benefits to the employees, which the employee is often ignorant of. People who have lesser knowledge about the management of superannuation and super funds tend to lose money out of the superannuation amount they are entitled to at the end.

In order to develop a sound financial plan for retirement, it is imperative to understand the benefits that an individual can gain by superannuation and super funds and build intellect about the same.

According to the Australian Securities and Investments Commission (ASIC):

“Superannuation is a tax-effective way to save for your retirement

It is similar to a managed fund where your money is pooled with other members' money and invested on your behalf by professional investment managers

Generally, you will not be able to access this money until you retire

Your employer will make contributions to your super fund, and you can top it up with your own money

The government may also make contributions if you are a low-income earner”

In addition to this, your employer must pay 9.5% of your salary into a super fund as per the law, which is called the ‘super guarantee’ and is expected to increase to 12% in the coming years.

Along with the benefits of retirement and pension planning, the employees also tend to put a part of their income into super funds to avail income tax benefits. The money once placed into superannuation account is expected to grow (without any tax implications) until the employee withdraws his/her money before retirement or at retirement.

Are you worried about your financial security and lifestyle after retirement?

Putting your savings into super funds is a good way to financially secure yourself and live up to the lifestyle you had dreamt of at your retirement.

There are several super funds that you can choose from in order to draw tax benefits and retirement planning.

Types of Super Funds

Super funds are broadly classified into two categories, namely, accumulation funds (very common funds) and defined-benefit funds (less common and the retirement benefit is defined by the fund rules).

Under the accumulation funds, the value of an employee’s retirement benefit depends on the amount of money contributed by the employer as well as the employee and the gains (or loses) attained by the fund. The risk of fund underperformance is upon the investor i.e. you.

However, Under the defined benefit funds, the value of an employee’s retirement benefit depends on the amount of money contributed by the employer as well as the employee, the duration for which the money is kept in the funds, and the employee’s salary at retirement. If the fund underperforms then the employer might still, ensure the fund delivers the benefit.

Further, super funds can be classified into various categories based on different features, namely, MySuper, Retail funds, Industry funds, Public sector funds, Corporate funds, Eligible rollover funds, and Self-managed super funds.

According to ASIC:

“Most people can choose which super fund they'd like their super contributions paid into

Check with your employer to make sure you can choose the fund your super is paid into”

But what next if you don’t choose a super fund while beginning with your fresh job?

It is very common for an employee not to remember, although unintentionally, to choose a fund while starting a fresh job. Under such circumstance, the employer shall make contributions for the employee into a 'default' fund that the employer chooses (or as identified in an industrial award).

In addition to this, the employer must pay the employee’s super into a MySuper account, which has lower fees and uncomplicated characteristics, so the employee doesn't pay for services he/she doesn't need.

However, an employee should make a comparison of the default fund with a minimum of two other super fund types, like a public sector fund and a corporate fund including a MySuper account.

Keys to Unlock Super Fund Comparison

Before putting money into a super fund, make a comparison of your chosen super with other super fund options. You can make a comparison of various supers based on the following criterion and also look out for the better option.

  • Fees- the lower, the better
  • Investment options- make sure there are options that suit your needs and comfort with risk
  • Extra benefits- your employer may pay more than 9.5% for certain super funds or if you make extra contributions yourself
  • Performance- pick a fund that has performed well over the long-term; do not chase last year's best performer
  • Insurance- see what cover is available and its cost
  • Service- call the fund or browse their website to see what other services they offer

In case of multiple super fund accounts, an employee has the facility to transfer and accumulate his/her money from each account into the new fund. However, it is imperative to validate the loss of insurance benefits before leaving a fund.

Some of the top super funds in Australia are Catholic Super Employer Sponsored, HOSTPLUS Personal Super, AustralianSuper, Cbus Industry Super, Cbus Industry Super, CareSuper Employee Plan etc. A little vigilance and placing special focus on the aforesaid points while making decisions can help to make the most of your super funds and a fruitful retirement corpus.

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