For a lot of people, superannuation is like a financial unicorn. You’ve heard about money that’s somehow pooling in a magical retirement fund and being invested in all sorts of things, but you never really see or touch it. Sometimes you don’t even know if it’s there at all.
I’ve decided it’s time to catch that unicorn and take a stronger interest in my super, because part of becoming financially aware means knowing where all my money is and what it’s doing – including the stuff that’s parked for retirement.
Ultimately, superannuation may be the biggest investment I’ll make in my lifetime. It’s really quite comforting to know that even when the bank account I can access is low on funds, my superannuation savings are still ticking along, working their ‘unicorn magic’ for my later years.
So, here are a few things I’ve learned about super:
1. A superannuation fund is a trust
A super fund is a special type of trust, set up and maintained to provide retirement benefits to its members.
According to Superguide.com.au, the key difference between a managed fund and a super fund is that with a super fund, you can’t access your money until you reach a certain “preservation” age, and you get better tax concessions because of this (you need to be at least 60 for your super to be tax free).
2. Your employer has to pay super contributions – it’s the law and it’s great
In Australia, superannuation is a universal scheme designed to help people build up and save for retirement. This is actually an awesome thing. It requires employers to make regular contributions into your super account, which is called the ‘Superannuation Guarantee’.
This compulsory superannuation contribution does not come out of your pay – it’s an extra payment, which is currently an additional 9.5% of your wage.
You can also make your own super contributions and there are several ways to boost your super. As I’m currently self-employed, I’m going to have to look into this and make my own contributions ASAP.
3. There are different kinds of super funds
All of these types have their own pros and cons, which you should look into if you want to move your money. I currently have most of my super with an industry fund and some with a retail fund.
- Industry funds: These are often aimed at people who work in a specific industry, and some employers are signed up with a particular fund (but this doesn’t mean you have to).
- Retail funds: These funds are run by banks and investment companies and are open to everyone.
- Public sector funds: These funds are generally open to government employees.
- Corporate funds: Generally only open to people working for a particular employer or corporation.
- Self-managed super funds (SMSFs): A SMSF is managed by the trustee (you) which means you handle all investment decisions and legal responsibilities. You will need to seek financial advice if you want to go down this route.
4. Splitting your super across multiple funds costs you money
If you’ve had a number of jobs over the years, chances are you’ll have a few different super accounts. Until recently I had money in six different funds and was paying fees in all of them, eek!
Consolidating your super into the best performing fund/s or the fund with the lowest fees, could save you a mint and leave you in a much better financial position when you need to use that money. However, be aware of any insurance policies tied to your accounts (see point 5 below).
5. Some super funds automatically sign you up for TPD and life insurance (death cover)
This part is critical if you have a family. Before you go signing up for any life insurance policies advertised on TV – please check what insurance is provided by your super fund. When I looked into this, I discovered I was already covered for more than $300,000.
TPD stands for Total and Permanent Disability. This is not a fun thing to think or talk about, but if you have this coverage through your super fund and you are seriously injured or very sick and no longer able to work, you can claim this lump sum. If you die, your partner or children should be able to access this insurance along with any money in your super fund. You may also be able to access income protection insurance through your super, so check it out!
Having your insurance cover linked to your super fund means you pay the (often lower) premium out of your super, rather than out of your usual bank account – a win for your cash flow.
6. You can decide how you want your money invested
Usually, your super fund will put you in a fairly conservative investment category by default, but you have the power to change this depending on the level of risk you are comfortable with.
I’ll admit I’m a fairly risk-averse person, but as I’m still in my 30s, retirement savings are basically the definition of a long-term investment. So, having a portion of them in higher risk investments should be OK and may even result in larger returns over the long term. According to Super Guru:
History has shown that over the long term, short term fluctuations tend to be outweighed by the higher returns from these ‘riskier’ types of assets.
Obviously, get some proper advice before making any changes to your portfolio, but know that the option is there.