At this time of year you are likely to receive your annual superannuation statements. These statements outline what has happened to your money over the last 12 months and give you a lot more information than just your account balance. These annual statements can often be complex and confusing, so 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 your superannuation 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 assets, considered to be lower risk. Whilst this may be a generalisation, it is important that you get the appropriate investment 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 out what risk profile you are and the type of investment strategy that may suit you.
2. Past Performance
The performance of the investments in your super fund is typically split into categories of measurement:
- Investment Performance is the performance of the investment options that you have selected. This is often expressed as a percentage and provides the return on each of your investment options over a stated timeframe, such as one year, five or ten years.
- Your specific Rate of Return is the weighted rate of return for all your investment options.
Evaluating performance figures can provide a good indication of how your superannuation stacks up relative to other investments and super funds over the same time period. It can help to look for after-tax return figures as they provide a true indication of investment performance, taking into consideration fees and taxes.
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 proportions and over equal timeframes. It is also important to remember that past performance should not be used as a measure for future performance.
Your superannuation benefits do not form part of your estate assets, which means that you will need to nominate a beneficiary specifically to receive your superannuation 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 personal circumstances.
If no nomination is made then the superannuation fund may pay death benefits to your dependents, your estate or others as it sees fit.
While superannuation is an investment designed for your retirement, you are able to hold personal insurances within the fund. These may include Life insurance, Total & Permanent Disability insurance and in some cases Salary Continuance benefit (also often referred to as Income Protection or Sickness and Accident insurance). Not all superannuation funds provide insurance benefits for members and some provide automatic insurance cover known as default cover. In most cases, if the default cover isn’t suitable to your needs, you can request more cover.
When checking your insurances you may wish to consider whether the cover is adequate for your needs and if you feel the premiums are reasonable for the cover provided. You are able to request a Policy Document for a list of what cover you have or ask your adviser to complete an insurance needs analysis and review for you.
There are a range of fees that may be payable within your superannuation fund. The most common types of fees are:
- Member Fees: A fee payable for being a member of the superannuation fund.
- Administration Fees: Fees payable to the superannuation fund which cover the costs of administration and keeping your account open.
- Investment Management Fees (also referred to as ICR and MER): Fees payable to the manager of the investment options you choose in the fund. The fees will vary for each option.
- Contribution Fees: A fee to cover the administration expense of receiving and investing your superannuation contributions.
- Adviser Service Fees: A fee payable to your financial adviser for any personal advice that you receive about your superannuation or other investments.
- Insurance Premiums: The costs of Life, TPD and Salary Continuance insurance cover that is owned by your superannuation fund for your benefit.
When you add up your fees, the overall fee should be the annual percentage charged on your balance. This percentage fee typically ranges between 1% and 3% pa. Generally, a lower fee is better as the more of your wealth that stays in your own savings the greater your retirement savings will grow.
When it comes to investing, fees definitely matter but the decision over the suitability of a specific superannuation fund for your individual needs 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 your financial wellbeing and retirement. With so many terms and options, it can be difficult to accurately review and compare your superannuation 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.
You can learn more about superannuation in our superannuation module.