Superannuation Unravelled

[Andrew from Vista Financial]

I thought that I would post something here as I get quite a few enquiries from members about Super and how it works etc etc.

I have written a bit about the different types of funds and features to try to give people a bit of an understanding of each type.

 

Remember Superannuation is not the investment it is the wrapper around the investment, like an ISA for example. When your money goes into the Super fund you then choose the investment fund for example a Balanced fund. The investment choice on offer will vary with the type of Super fund you have.

 

Super is one of the most tax efficient investments available with gains and income being taxed between 10% - 15% so for many people it is an ideal place to save money for their retirement and of course the only place your Employer Super contributions are able to be paid into. The Government have made it clear that they want individuals to have the ability to choose their own Superannuation fund.

So the different types of funds available are as follows:

 

Industry Funds

 

So generally Industry funds are available to people that work in specific industries, although some are available to anyone. They tend to offer a limited investment fund choice with around 10 in house investment funds on average to choose from. Their fees typically include an annual member fee and the investment manager fee generally ranges between 0.5% - 1.0%.

 

Retail Funds

 

Retail funds are available to pretty much anyone able to contribute to Super. There is a wide range of Retail funds available and they are offered through Fund Managers. It may be that a Fund Manger offers a Super fund that has only its own in house funds within it for example a BT Financial Group Super (part of WestPac) therefore these Retail funds may have similar limited investment fund choices and fees of between 0.5% - 1.0% as industry funds.

 

Then there are Retail funds that have a wider choice of investment funds to choose from another example of this might be an ING Super fund. This may have say 80 investment funds to choose from and offers access to leading fund managers from around the world all within the one Super fund. Investment fund fees may range from between 1.0% – 2.0%.

 

 

Master Trusts/Wraps

 

These types of funds are still available to the public and are offered through Fund Managers but have a vast range of investment funds to choose from ranging between 200 – 700 funds from Fund Mangers around the world. They also have the ability to purchase shares direct from the Australian Stock Exchange some have the top 600 stock available. The investment fund fee is typically between 0.5% - 1.5% and there is usually an administration fee of up to 1% in addition.

 

Many offer rebates to people with larger balances starting from around $100,000 and they also have the ability to link accounts between family members to benefit from greater fee rebates. Some also offer taxation optimisation which can reduce the amount of tax payable by delaying when they pay the tax.

 

Corporate/Employer Funds

 

These are offered by Fund Managers specifically to Employers for their Employees. These types of Super funds can vary greatly from limited investment fund choices with fees between 0.5% to 1.0% similar to industry/retail funds through to Wrap type products with greater investment fund choices and benefits.

 

Life Insurance

 

The types of Insurance offered through Superannuation can be:

· Life cover

· Total and Permanent Disability

· Salary Continuance / Income Protection

 

Group Insurance contract

 

Industry Funds, Employer/Corporate Funds and some Retails funds generally offer this under what is known as a Group policy. This usually means that you can hold the above insurances and the premiums are generally lower than individual insurance policies as the insurance company are insuring a large number of people. The disadvantage of this can be that the cover is quite basic and not tailored to individuals therefore it might not suit. As an example the Salary Continuance may only offer a 60/90 day wait period and a maximum benefit/claim period of 2 years.

 

Retail Insurance

 

This is offered through some Retail funds and can be held and funded from within your Superannuation. Therefore you can tailor the Insurance specifically to your needs and have it within your Super fund. For example you might want to opt for Income Protection with a 30 day wait and benefit period until you are 65 and add on an increasing claim option so that in the event of long term illness your monthly replacement income increases with the cost of living i.e inflation.

 

Financial Advice

 

Not everyone knows what is available or indeed what levels of insurance to take out and most importantly where to invest their money to get it working as hard as they can for them but within their risk tolerance, for example a Balanced fund can range from 60/40 Growth v Defensive assets to 80/20. There are so many different fund choices available and over a 5 year period there can be differences as high as 4% – 5% per annum in performance.

 

Some people also want to work towards a required retirement income and want to know how much they will need in retirement to be able to achieve their required income. This of course is where Financial Advice comes in to play and correct portfolio planning and strategy advice could be the difference between being comfortable in retirement or not.

 

Hope this helps.

 

Regards

 

Andy

 

 

(Please note that the above are general comments only and does not constitute advice)