How to choose your default Super fund

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Choosing the right superannuation fund can be like navigating a maze. Just when you think you’re onto a winner you run into a dead end – whether that be because of high fees, hidden costs, or poor performance. Today we’ll break down the process of choosing a fund in 9 simple steps.

Superannuation is a $2.6 trillion industry. And 40% of Australians have retirement funds swirling around in more than one account.

This leaves those retirement funds open to being eaten away by duplicate fees and multiple life insurance policies.

So to make it easier for Australians to keep track of their Super, the Royal Commission recently recommended that each person should have only one default superannuation account.

Late last year the Productivity Commission also recommended that a ‘best in show’ shortlist of up to 10 superannuation products should be presented to all employees who are new to the workforce to help them choose a default product.

However, rather than wait and see if those changes are ever enacted, it’s important to get on the front foot and take charge yourself. Here we’ll walk you through how to do so in 9 simple steps.

1. Check to see if you can change

Before you spend too much time researching, first check with your employer to see if you can actually choose a fund.

While most people can choose a fund for their employer’s Super contributions to be paid to, members of defined benefit funds or people who are covered by industrial agreements don’t have this choice.

2. Identify your risk level

Before you can start creating a shortlist of potential Super funds, you need to identify your level of risk tolerance.

Are you a ‘slow and steady wins the race’ kind of person? Do you prefer a good balance? Or are you willing to accept a little more risk for the potential of higher returns?

Your answer may depend on where you’re at in your life cycle, and it’s worth discussing with your financial adviser.

3. Create a shortlist

Once you’ve identified your risk profile you can start looking for Super funds that fit that within those parameters.

Super comparison websites can help you narrow down your list, but you should never make your decision on the website rating alone.

That’s because it’s important to remember that comparison websites are also businesses. And the purpose of a business is to make money.

Instead, use them only as a way to narrow what is a very wide field.

Better yet, we’d be happy to provide you with a short list of funds that will suit your unique situation.

4. Look at performance over a long-term period

Once you’ve got a shortlist, it’s time to start comparing performance.

Keep in mind that while past performance is no guarantee of future results, the Productivity Commission does see merit in past performances in the Super field.

“The age-old adage that past performance is no guarantee of future performance is only true of investment markets in a narrow sense,” The Productivity Commission said in its report.

“Good long-term performance is associated with low fees, good governance, and sufficient scale.”

Try and pick out a fund that has performed consistently well over 5-10 years, not a fund that had a bumper year in 2018.

5. Compare fees and costs

As the Productivity Commission alluded to, when comparing Super funds it’s good to start with the fees. And as ASIC states – “The lower the better … a 1% difference in fees now could be up to a 20% difference in 30 years”.

Here is a list of fees and costs to keep an eye out for in the Product Disclosure Statement (PDS): administration fees, investment fees, switching fees, buy/sell spread fee, insurance premiums, exit fees and activity-based fees

ASIC has also written this report to help you avoid getting stung by any hidden fees and costs.

6. Insurance

Most superannuation accounts come with life insurance policies.

Changing Super funds means you may not get the same death, total permanent disability or income protection cover that your your old fund had. The premium and coverage will also differ from fund to fund.

And it’s important to note that if you do switch, you may find that you won’t be covered for a pre-existing medical condition, or if you’re aged 60 or over.

The other consideration is that you may not need life insurance within your Super policy at all, as you may already have a standalone policy.

Either way, it’s important seek financial advice if you’re unsure.

7. Any additional benefits or services

Before you decide to make the move to a particular Super fund it’s worth calling the fund directly to see what other services they offer.

For example, your employer may pay more than 9.5% for certain Super funds or if you make extra contributions yourself.

8. Changing and consolidating funds

Once you’ve chosen a new Super fund you’ll need to open an account.

You’ll then need to provide your employer with all the details of your new fund.

While you’re at it, you should also look for any lost Super you may have. There’s a chance you may have some in a default account from a pervious job. You can find and manage your Super using ATO online services through myGov.

You can also roll over your Super into your new chosen fund through myGov, or by requesting a form from your new fund. Most Super funds are more than happy to guide you through the process.

9. Check with your financial adviser

Finally, if you have any doubts along the way, or simply would prefer someone to help guide and educate you through the steps, then don’t hesitate to get in touch.

We’re here to help you set goals and plan for retirement – and choosing the right Super fund is a big part of that.

We can also run you through the full list of Super options – including self-managed Super funds (SMSFs), MySuper and Industry Super Funds – to see which one is right for you.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Thinking about a reverse mortgage to fund your retirement?

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With a reverse mortgage you can unlock nest egg funds without having to sell your whole nest. Here’s how we can help in the process.

Reverse mortgages have popped up in the news this week – both for good and not-so-good reasons.

On the one hand, corporate regulator ASIC says reverse mortgages are allowing older Australians to achieve their immediate financial goals and help improve their lifestyles in retirement. That’s the good.

On the other hand, ASIC warned that longer-term challenges exist, with a comprehensive review finding borrowers had a poor understanding of the risks and future costs of their loan. That’s the not-so-good.

The great news for you is that we can help in both departments.

But first, what is a reverse mortgage?

Reverse mortgages are a credit product that allow you to borrow using the equity in your home as security.

The loan can be taken in one big lump sum, a regular income, or a line of credit.

The older you are, the more you can borrow. If you’re aged 60, you can borrow about 15-20% of the value of your home. The rule of thumb is that you can add about 1% to your borrowing capacity each year thereafter. So if you’re 70, you can borrow 25-30%.

The upside: the loan doesn’t need to be repaid until much later, such as when the borrower passes away or vacates the property.

The catch: a reverse mortgage is a more expensive form of credit compared to standard home loans; the interest rates are typically 2% higher and, as there are no repayments required, interest compounds.

The challenges

Remember how we mentioned ASIC’s findings that borrowers have poor understanding of the risks and costs associated with a reverse mortgage?

Well, let’s dissect that a bit.

ASIC has just reviewed data on 17,000 reverse mortgages and conducted a bunch of interviews with borrowers and industry stakeholders.

The crux of their findings is that lenders need to do more when it comes to letting borrowers know how a reverse mortgage can impact their ability to fund their financial needs down the track – needs like being able to afford aged care.

In fact, for nearly all of the loan files ASIC reviewed, the borrower’s long term needs or financial objectives were not adequately documented.

How we can help

Now, that’s not to say reverse mortgages aren’t a viable option to help fund your retirement.

In fact, ASIC Deputy Chair Peter Kell said this about them: “Reverse mortgage products can help many Australians achieve a better quality of life in retirement.”

What’s needed, added Kell, is someone who you can have a “genuine conversation with” about your possible future needs – “not just a set of tick boxes on a form.”

And as you know, getting to understanding who you are and what your goals are is what we do best.

So if you’d like to find out more about reverse mortgages, get in touch. We’d be more than happy to help you navigate the challenges and find a suitable reverse mortgage option.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.