Superannuation was first introduced in the early 19th century as an employee benefit for public service employees and white-collar businessmen (mainly managerial) to build retirement savings. Since that time the laws around availability, taxation, the aged pension, insurance and conditions of release kept adapting and in 1992 the government introduced the Superannuation Guarantee Act which required employers to make contributions on behalf of employees to complying super funds.
Since it became compulsory, there has been numerous offerings from Industry Superfunds through to Self-Managed Superfunds with each offering a different level of control and complexity. With there being so many choices the client is often unsure what it is that best suits their personal requirements. We find many clients have multiple funds; doubling up on fees, insurance costs and ultimately not acting as a reflection of their goals and desires. The earlier action is taken to understand your superannuation situation the better the outcomes will reflect your goals.
Fund Selection
When considering which superannuation fund is best for you there are many variables to take into account. Some of these the variables are the fee structure, the approved investment list, tailored or general insurance offered. It is extremely important that when you are comparing funds; you are in fact comparing the same features or costs; for example, using the rate of return needs to be after fees taken out not prior to get a true reflection. Getting the correct information can often be a challenge.
Risk Profile
Each individual is very different when it comes to investing. We each have a different level of risk appetite, ethical investing and understanding of markets/industries. These variables will always help determine the makeup of your investment selections; coupled with the return your trying to achieve. Generally, risk and reward have a correlation to the end investment return but in saying this so does choice of industries, ethical decisions and timing of your investments. To really understand where you’re investing the risk profile needs to be completed accurately to help guide the investments that will best suit you now and into the future.
Insurance in Superannuation
Insurance can help alleviate certain risk factors; such as loss of income or help pay medical expenses due to an injury. Insurance regardless of it being within superannuation or held personally should take on the same level of tailoring as your investment decisions. Each of us require different levels of insurance. Structuring certain insurances such as life insurance or Total Permanent Disability (TPD) insurance inside of your superannuation fund can be beneficial as it doesn’t impact your personal cash flow and often can be a tax deduction within the superannuation fund. (Yes, you pay tax on Super within a fund – often we find people aren’t aware of this).
Superfunds that offer default cover insurance do so using a general insurance model, it doesn’t take into account your health or level of required cover. This insurance generally decreases with each birthday you have, and the cost remains the same each year. If you tailor your insurance, you can set the level to where it is appropriate to your circumstances and it will stay at that level unless you change it – this can have a huge bearing if you do go to make a claim. Insurance is a very complex area but one that should not be ignored as you never have enough when you go to make a claim!
Contact us today for a free consultation with one of our experienced advisers.
Any advice given in this article is general in nature and does not take into account your personal situation.