Tune-Up Your Super
For the majority of people sorting out their superannuation can be put into the too hard basket, or let’s be honest the too boring basket, and left for another day which never comes. Yet, if you can dedicate some time getting it setup now, you’ll be putting yourself ahead of the pack. After following these easy steps, all you will have to do is check-in from time to time or when your circumstances change. So grab your financial toolbox (your computer, your tax file number and your calculator) and let’s get started.
Getting it all together
Getting all your superannuation accounts together into one place is a great first step. By doing so you are going to save yourself fees and make it simpler to manage going forward. The good news is, it is much easier to consolidate accounts now than it used to be, so if you tried it before and gave up, now’s the time to try again.
When you know where it is
These days superannuation funds can process rollovers electronically, meaning you can simply go to the website of your preferred superannuation fund to complete the process there. You will be asked to fill in your personal details and provide your member number, some may also ask for your tax file number (TFN) so keep it handy. Next you supply the details of the funds you are transferring from, (name of fund & member number – which you can find on your annual statements) and your preferred superannuation fund can take it from there.
I think I might have more super accounts but I’m not sure where
All superannuation funds are required to lodge details of every single member account with the Australian Tax Office (ATO) so this is the best place to look. There are a couple of ways to search the ATO’s database:
- Go to the ATO’s Super site, then click on ‘Find your lost super’ – this will take you to the MyGov site, you will be prompted login or to setup an account if you don’t have one already. You will need to link the ATO as one of your services. Once your ATO account is linked, click on ‘Super’ and you’ll see details of all superannuation listed under your TFN, meaning if you’ve changed your name while working it should still be there. From here you just click on the accounts you want transferred and indicate the account you want to receive the funds.
- Another way to contact your preferred super fund. With your permission, your super fund can search for these accounts for you. They’ll notify you of your lost accounts, then if you’re happy you can give the go-ahead to transfer them.
Considerations when transferring your super
Before you rollover your super, you should check whether there are exit fees to pay or other benefits you may lose when leaving the fund, a quick call to the super fund should clarify this. It is important to understand whether you will lose any life insurance or income protection cover. It’s likely that any cover will cease when you rollout, so if you are planning to replace that insurance cover with cover from a different company the most prudent thing to do is to delay rolling out until you have confirmation from your new super fund or insurer that your replacement cover has been accepted.
So you have your super in one place, now it’s time to tailor your account to make sure you’re maximising your benefits.
Superannuation is an investment for your retirement and understanding your attitude to investment risk is one factor to consider when investing. The basic rule of thumb when investing is knowing that to achieve higher returns you need to be prepared to accept a higher level of risk.
The other important consideration with investing is your time horizon. With superannuation this will usually be a longer period of time because the money cannot be touched until you hit your retirement. This time horizon is critical because when your time horizon is short (eg under two years) then the biggest risk you face is that market fluctuations cause you to lose some of your capital. This is why short term investors are usually advised to have a much higher weighting to cash and bonds because they don’t have the time to make back investment losses. By contrast if you have a long investment time frame (20 years plus) market fluctuations are unlikely to be a problem, your greatest risk is that your investment doesn’t keep up with inflation. People with long time horizons are usually advised to have a much higher weighting to growth investments such as shares, because these investments tend to be the best defence against the rising cost of living.
You can read more about your risk profile in ‘What is a risk profile’.
The majority of superannuation accounts have insurance attached to them, especially if your employer opened the account on your behalf. The insurance in superannuation is generally cheaper than insurance obtained directly from insurance companies, due to super funds getting a group discount for all their members.
However, the insurance is automatically provided through super funds at a generic level based on age group. It is unlikely that your automatic cover will be a perfect fit for your individual circumstances, however most super funds allow you to make changes to better suit you. If you’re not sure how much cover you should have a financial adviser can help you understand the appropriate level of insurance for you, and whether inside or outside of super is best for you.
It’s prudent to tell your super fund who you want your money to go to in the event of your death by nominating beneficiaries on your account. This reduces the chance of families falling out about who should get the money, it means the funds get to the right person and allow the super funds to get the money to your loved ones with as little delay as possible.
You can nominate in two ways:
- Non-binding – this option provides your super fund an indication of who you would prefer the money to go to, it’s often the quickest and easiest one to complete. However the super fund can override this nomination if someone can demonstrate that they have reasonable grounds to be a beneficiary
- Binding – this nomination cannot be overridden by the super fund and must be paid in accordance with your wishes. As the decision is completely taken from the super funds hands, the payment of a death benefit to your beneficiaries is usually much faster too. The rules on completing these forms are more stringent and it is probable that you’ll need to get your form witnessed by two people who aren’t named as beneficiaries.
To make a nomination on your account your super fund will ask you to complete and return a form which can be obtained by visiting their website or by calling them.
Are you still with me? Great! We’re nearly there
Putting aside some money for the long term is an important step to preparing for your retirement. Over the long term, even small amounts can make a big difference and you’ll probably be pleasantly surprised at how big the result can be 5-6 years down the track. Also the Government gives some great tax incentives to motivate you to save for retirement and you should try to take advantage of them if you can.
There are two types of contributions to superannuation, and choosing the right one for you or making a mixture of both, is determined by your income level.
For lower income earners a personal (or after-tax contribution) is often preferable. This is money which has had its tax taken out, and is either in your bank account or can be sent straight to your super fund by your employer. In return the Government matches half of what you put in, (up to $500) which is a guaranteed 50% return on your investment. That’s a return you’d be hard pressed to find through any other investments.
The Government co-contribution cuts out when your income reaches just over $50K, so if you’re over this mark, salary sacrifice is usually a better option. Salary sacrifice is taken from your before-tax income, and receives a favourable tax rate of only 15% rather than your marginal tax rate. The benefit is a guaranteed tax saving which improves your net wealth. While this money is locked away until retirement, you effectively earn more money by reducing the amount of tax you pay.
Some people find themselves in a sweet-spot and are able to capitalise on both types of contributions. If you find yourself in this situation its best to max out your Government co-contribution first, then take advantage of salary-sacrifice tax benefits with the remaining money. If you would like to work out which type of contribution you should make, you can head to this neat little calculator, and enter your salary details.
Deciding how much to save can feel a bit tricky, you might start with looking at your budget to see how much you can afford or setting a goal and trying to work your cashflow around achieving that level of saving.
How much you should save varies from person to person, it will depend upon how on how much you have already saved, how long until you retire, what sort of lifestyle you want and whether you are likely to take career breaks. However a good goal for women’s retirement savings is 15% of your salary. Before you start panicking, your employer probably already contributes 9.5%, so that leaves 5.5% for you. For some people that’s easy to achieve, for the rest of us we might need to build up over time. Perhaps you could make a start and arrange with your employer to set aside an extra 1% of your salary towards your super fund, then each year (or each time you get a pay rise) increase this by an extra percent. In no time at all your super will be saving at great rate, and because it’s happening automatically you won’t even notice it.
Finished your super tune up? Now what?
Opening and reading your annual statements is a good practice, yes they are hard to read but at least keeping an eye on the how your balance is going is a good idea, this will keep you motivated to keep up your savings. You should also think about checking in on your super when you experience significant life events. Marriage, divorce, buying a house, new job, promotion, birth of child, moving countries. These types of events usually bring with them a change in your finances, changes in income, changes in debts and therefore often have implications for how much you can save, the tax efficient way to make contributions, how much insurance you need and even who should get your funds if something happened to you.
Having done a thorough tune-up of your super you can put your feet up and grab a refreshing Gin and Tonic, you’ve earnt it. While your relaxing, your super funds are off working hard to build your nest egg, taking care of your long term retirement security.