I’ve been meaning to sort out my superannuation for aaaaages. Just one thing stopped me: information overload. Each time I attempted to do something about it, I found my eyes watering from all the paragraphs and numbers I had to trawl through. As with many things financial, the industry likes to overcomplicate things. I’m gonna do my best to break it down for y’all.
What is superannuation?
In Australia, superannuation helps you save for retirement while you’re still working. Employers are required to put 9.5% of your before-tax income into a super fund, which invests all this money on your behalf. Yes, they get to touch your money, move it around, and charge you fees for it. Yet, a lot of people have absolutely no idea what is going on with their super! 😰
Research by the ASFA has found that young Australians under 30 years old tend to have more money in their superannuation accounts than their bank accounts. And yet, around 40 per cent of them have no idea what their super balance is. — Super Guru
Just. Bizarre. Even though you might not get to touch your superannuation funds until you’re 60 years old, it’s still your money and you shouldn’t let it go down the drain just like that. I’ve heard countless horror stories of friends having their super balances eroded completely through fees alone.
Most of us (myself included) just go with whatever super fund our employer chooses for us. That’s why we end up with 101 different super funds from all the jobs we’ve had and end up paying a lot of unnecessary fees. If you have a myGov account, it’s super easy to combine all of them into one fund. The dudes at pearler have created an awesome step-by-step guide to consolidating your super. (Scroll down to Step 3 if you’ve already set up myGov with the ATO.)
Note: Be sure to do some digging about your insurance situation before moving your super, because it can automatically cancel any insurance you have.
Choosing a super fund
Note: I think this goes without saying, but I’m just sharing what I considered in choosing my super – please do your own research and make your own informed decisions.
Lemme tell you, doing research on this was not fun. It just seemed like there were soooooo many nitty-gritty details to consider and ain’t nobody got time for that! I tried to dumb it down to three key considerations per the ASIC MoneySmart website:
- Fees – the lower the better
- Performance – pick a fund that has performed well over the last 5 years (or even better, 10 years)
- Insurance – see what cover is available and what it will cost
I don’t have much of a super balance at this point, so I decided not to put in that much effort to find the perfect fund. I had started comparing funds by their fees when I came across this:
“It does not make sense to compare funds that are quite different just on the basis of fees and costs. For example, funds that have a lot of property or private equity may have higher costs but they are likely to have different levels of risk and expected return, compared to funds that have more cash and fixed interest investments.”
I hadn’t even realised that each super fund could have as many as 20+ different options within them. Some even allow you to choose your own investment allocations. As I said before — ain’t nobody got time for that.
How could I make my life easier? Well, I’d previously come across Verve Super, so I decided to do some research. It’s the only women-focused super fund in Australia thus far. Aside from the focus on females, what I really like is that they only make ethical investments. Plus, they only have one investment option – Super Balanced Growth. Keep it simple, sista!
One other thing that is important to consider is your risk profile. According to Canstar, “a conservative risk profile seeks steady low return investments but is less likely to see a loss. A more aggressive profile seeks higher returns but is also be more at risk of a downturn.”
The Verve growth option is classified as high risk, which correlates to this profile:
A growth investor values higher long-term returns and is willing to accept considerable risk. This investor is comfortable and willing to endure short-term fluctuations and/or losses in exchange for the potential of higher long-term returns.
Since I’m still young, that suits me just fine. Of course, depending on what stage of life you’re at, you might benefit from having other options with different risk allocations. Most super funds provide this information on their website.
In terms of fees, Verve charges around $688 a year on a $50,000 balance. (Side note: that’s just a way to standardise things so it’s easier to compare. Wish I had a $50,000 balance!) Here’s a full breakdown:
The main ones to look at are the investment fee, administration fee and indirect cost ratio. The buy/sell spread only applies when you switch investment options, so it’s kinda irrelevant here. Investment fees over the cost of managing the investment and as such can be different for each investment option. Administration fees cover the cost of operating the fund. The indirect cost ratio covers the expenses of an investment (e.g. brokerage costs when buying/selling shares).
This does seem a little high compared to other high-risk options, but they all seem to be around the $500-700 mark on average. To make things easy, MoneySmart has a list of fees for MySuper funds. I know that a slight difference in fees will make a pretty big difference in the long run, but I can’t be bothered with diving into the complexities at the moment. 🙄
Since they’re relatively new, there isn’t much historical performance to evaluate. But they did deliver around a 10% return in their first 6 months of operation. Of course, returns could fluctuate over time, so I’ll just have to keep monitoring their performance.
Super funds usually offer life insurance (death cover), total and permanent disability (TPD) insurance and income protection insurance. If you choose to have insurance cover, it’ll come with additional costs which are deducted from your super balance. The exact costs depend on your individual circumstances. If you want to find out more, you can read up on the MoneySmart guide to insurance through super. Since the premiums are low while I’m young and healthy, I just chose the default level of cover.
Honestly, if you’re still young, I don’t think it really matters much. If you can’t be bothered putting in the effort to do some research, at least ensure that all of your super is consolidated into the fund that your current employer is using to avoid paying multiple fees for no reason. Then, if you ever switch jobs, request the new employer to pay them into the same fund, rather than starting an account in another fund.
Ultimately, we can’t rely on just our superannuation to fund our living expenses when we’re older. But at least we can safeguard what money we have set aside. If you’d like to seek actual financial advice, be sure to do your research into the adviser you’re speaking to. Some super funds provide financial advice (they might charge a fee) — but it’s always good to get a second opinion if you can.
I’d love to hear about your experience (or lack thereof) with superannuation! Leave a comment or get in touch here.
Shoutout to the peeps at Understanding Super for helping me out with this post! They have a video series explaining the basics of superannuation and a handy dandy checklist of the important things to consider about your superannuation. Be sure to check out their website if you wanna learn more.