At this time of year, we are likely to receive our annual superannuation statements. These statements outline what has happened to our money over the last 12 months and give us a lot more information than just our account balance. Here are our top five tips to help you investigate and understand your superannuation:
1. Investment Mix
The Asset Allocation or Investment Mix refers to the proportion of our super money that is invested in each asset class. For example, you could have 100% invested in cash or it could be divided up between cash, fixed interest, property and shares.
Check to make sure your investment mix matches your tolerance to risk. As a general rule of thumb, the younger you are and longer you have until your retirement, the more exposure you may have to growth assets such as shares and property that are generally considered higher risk. As you get older and move closer to retirement, it’s likely you’ll adopt a more conservative investment mix with a higher allocation to the cash and fixed interest, considered to be lower risk.
Whilst this may be a generalisation, it is important that you get the right mix to suit your own timeline and investment objectives. If you are not sure what your risk profile is, then a financial adviser can help you to work that out and recommend the type of investment that may suit you.
2. Past Performance
The performance of the investments in our super fund is typically split into two:
- The performance of the investment options that we have selected. This is often expressed as a percentage and provides the return on each of the investment options over a stated timeframe, such as 1 year, 5 or 10 years.
- A specific Rate of Return is the weighted rate of return for all our investment options combined. This is the one that tells you how your account performed.
Although looking at the performance will allow us to see how well our investment choices performed in the past, it is generally an unreliable indicator of what to expect from them in the future.
If you are comparing funds, make sure you are comparing ‘apples with apples’. This means making sure that the investment performance of each super fund is expressed in comparable asset type proportions and over equal timeframes. Just because your super fund labelled the investment option as “balanced”, doesn’t mean that this label will mean exactly same thing in another fund. Comparing different funds requires looking “under the bonnet” to see how they are split between asset types.
You may find reports on many super funds’ performances at www.selectingsuper.com.au/tools/performance_tables
Remember these reports show you only what happened in the past. It is not uncommon to see a top performer to fall to the bottom of the table in the following year. Consistency can be more important here than stellar results.
Our superannuation benefits do not form part of our estate assets, which means that you will need to nominate a beneficiary specifically to receive your super benefits. If you choose to nominate a beneficiary, it’s important to keep your nomination up to date so that it reflects any changes in your circumstances. Not all persons can be nominated and some beneficiaries get taxed heavily. Speak to your super fund or a financial adviser to understand the differences.
If no nomination is made, or if it is invalid, then the fund may pay death benefits to our dependents, our estate or others as it sees fit.
We are able to hold personal insurances within the fund. These may include Life, Total & Permanent Disability (TPD) insurance and in some cases Salary Continuance benefit (also often referred to as Income Protection). Not all super funds provide insurance and some provide automatic insurance cover. In most cases, if the automatic cover isn’t suitable to our needs, we can change it.
When checking your insurances, you may wish to consider whether the cover is adequate for your needs and whether you feel the premiums are reasonable for the cover provided. It is also important to check the fine print. You are able to request a Policy Document for a list of what covers you have or ask your adviser to complete an insurance needs analysis, review it and check the fine print.
There are a range of fees that may be payable within the superannuation fund. The most common types of fees are:
- Member Fees: A fee payable for being a member.
- Administration Fees: Fees payable to cover the costs of administration and keeping the account open.
- Investment Management Fees (also referred to as ICR and MER): Fees payable to the manager of the investment options we choose in the fund. The fees will vary for each option and are often quoted as a combined dollar figure under heading “indirect fees”. These are often deducted from the profits of the investment before the final return is calculated. Therefore you will not see a specific transaction for these fees.
- Contribution Fees: A fee to cover the administration expense of receiving and investing our superannuation contributions. Deducted directly from each contribution. Very rare these days.
- Adviser Service Fees: A fee payable to our financial adviser for any personal advice that we receive about our superannuation or other investments.
- Insurance Premiums: The costs of Life, TPD and Salary Continuance insurance covers.
When the fees are added-up, the overall figure – once converted to a percentage of the balance – would typically range between 0.5% and 3% pa. Generally, a lower fee is better as the more of our wealth that stays in our own savings, the greater our retirement savings will grow.
When it comes to super, fees definitely matter but the decision should not come down to fees alone. It’s also important to take into consideration the full range of features and benefits, insurance options and advice that is also offered by the fund and from which you could benefit from accessing.
Superannuation savings are a very important element of our financial wellbeing and retirement. With so many terms and options, it can be difficult to accurately review and compare our super funds. If you don’t understand how your super fund is performing, or whether it’s the right solution for you, it is important to seek advice from your super fund or financial adviser.
MICHAEL BRANDT CFP®, B Comm (Accg), B.App Fin, Adv Dip FS(FP)
Senior Financial Planner
Authorised Representative 337019
Level 28, 31 Market Street, Sydney NSW 2000
T 02 8262 4000 F 02 9283 6331
The information in this article is provided by Apt Wealth Partners (AFSL 436121 ABN 49 159 583 847) and is of a general nature only. It may not be relevant to your personal needs, objectives or financial circumstances. The circumstances of each investor are different and you should seek advice from a financial planner who can consider if the strategies and products are right for you.