Three tips on how to simplify and grow your super fund
The beginning of a new year is often a good time for individuals to reflect on the past 12 months and to review and focus on their superannuation goals for the year ahead. Taking a closer look at one’s superannuation can make a significant difference with a small change in the present, which could result in beneficial outcomes in the long term. So, let’s think about the future and the positive changes that can be made to a super fund.
Three things that could make a real difference include:
- Choosing the ‘right’ type of super fund.
- Consolidating super funds.
- Making extra super contributions.
The ’right’ super fund
Finding a super fund to suit an individual might sound straightforward, but the majority of people tend to go with their employer’s default super fund option. According to the Productivity Commission report into the efficiency and competitiveness of superannuation in Australia, around two-thirds of new entrants to the workplace end up in the default superannuation fund option provided by their employer1. However, the encouraging news is that people have been taking a greater interest in what’s happening with their superannuation and making informed decisions about their super investment options.
In addition to assessing an individual’s investment goals and risk profile, when choosing a super fund, a person should also consider the investment options, fees being paid, the performance of the fund and insurance.
Many individuals have one than one super fund as some people end up with a different super fund for every job they’ve had over the years. It is possible to bring multiple super accounts together into the one fund, which can reduce costs and help boost the income earned on the super balance. The first thing an individual should do is to find out the names of the funds which they may have superannuation in. The easiest way to consolidate super funds is for an individual to use their MyGov2 account, which includes a service offered by the ATO to help people find their super accounts.
Before deciding to combine super into one account, individuals should check to see whether it makes sense to do so, and whether it’s possible to replace or transfer current insurance cover, which may potentially be lost when transferring benefits to a new fund. Also, keep an eye on the costs, risks and tax implications from consolidating super to ensure the transfer provides better value.
Make extra contributions
Extra contributions to super can be tax effective and the earlier an individual makes additional contributions, the greater the potential benefit from compounding returns. This can occur when individuals allow extra time for benefits to grow, for example over 30 years, a relatively small increase in contributions which can potentially make a real difference to the amount accumulated at retirement.
In addition to the benefit of making additional contributions, it’s also possible for the government to make co-contributions to super for individuals who qualify. People earning up to $54,837 in adjusted taxable income in 2020-21 financial year3 can qualify for a co-contribution of up to $500, but they will need to make a non-concessional contribution to their super fund.
But there’s more
In addition to these changes, there are other ways that can be included when reviewing your superannuation, such as setting your retirement goals, reviewing the investment mix in the fund or the insurance cover provided by the fund. These simple changes should help boost the super amount available for retirement over the long term.
1Productivity Commission Inquiry Report- Superannuation: Assessing Efficiency and Competitiveness (2018), Chapter 1, Section 1.1, Page 82: https://www.pc.gov.au/inquiries/completed/superannuation/assessment/report/superannuation-assessment.pdf
Subscribe to SMSF News using the form below to receive all of my articlesGraeme Colley, Executive Manager, SMSF Technical and Private Wealth - SuperConcepts
While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.
This article is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or invitation to invest.