The different features of a super fund are important considerations when deciding on a fund that will carry you through your entire working life.
One important feature is the type of contributions that your fund will accept. These are important because they affect a range of strategies that you can use to increase savings or reduce the tax you pay. For example, if a fund doesnít accept spouse contributions you will not be able to take advantage of the tax benefits that the government provides.
As a minimum, the following contribution types should be available through your super fund:
personal contributions (including self employed)
splitting of contributions with a spouse.
There are benefits in having your personal insurance held within super. Larger super funds can offer lower premiums because they are covering so many members on a group basis. Itís also generally cheaper to pay insurance through your super rather than from your post-tax salary because through super the premiums are tax-deductible to the fund. Only salary continuance insurance is generally tax-deductible if held outside of super.
Itís therefore common for insurance cover to be provided within super funds. The types of cover available are usually death, total and permanent disablement and salary continuance.
There are a number of areas you should consider when taking out insurance within your super fund:
Features Features such as the level of cover available, automatic acceptance and different underwriting terms and conditions can vary greatly between providers.
Restrictions You should also consider any restrictions that may be built into the cover offered. For example, you may not be able to keep the insurance cover if you change jobs. It may sometimes be more difficult to receive benefits paid under insurance held through super. For example, even if you satisfy the benefit payment requirements under the insurance policy (and so the benefit will be paid into your super), you will still need to satisfy one of the conditions of release from super (such as death or permanent incapacity) before you can withdraw the insurance benefit from your super. Restrictions could also refer to your age, dangerous jobs, part-time or casual work and maternity leave.
Cost Your fund will usually charge a fee to your account for the insurance, unless your employer pays for it. Costs do vary greatly between providers.
Investment choice is important as it can provide you with the flexibility to tailor your super investments to meet your personal preferences and needs and potentially increase your returns.
As a minimum, a super fund should provide at least five options to match your risk profile and asset allocation needs. Beyond that, the level of choice required will depend on the level of control you want over the investments in your portfolio and the investment program you may have in place to create greater returns.
Some funds offer default portfolios (known as model profiles, templates or managed accounts), over 200 managed funds and access to the top 300 ASX listed shares. This can provide freedom to construct a portfolio to best meetyour needs.
Although investment performance is important you should always remember that historical performance is not the best indicator of future performance, especially over periods of one to three years. Super funds can take risks and make excellent returns in the short term but those same risks may lead to very poor returns in future years.
Where you do use historical performance as a basis to compare funds, you should use a minimum of five years performance figures. Compare products only where they have consistent objectives, asset allocations and are calculated over the same time period. For example a fund with a defensive profile consistently returning 6% over five years will generally be viewed as preferable to a high growth profile returning 8% over five years.
The performance figures should also be calculated consistently (for example, is the figure before or after tax and fees)
Fees and charges
Itís important to consider the cost comparison of super funds because it can impact the amount of money you have for retirement. As fees on some super funds can be difficult to calculate, you should ask your adviser for help to clarify the fees on different funds to give a clear comparison between them.
These can include aspects such as a useful member website and client service centre, employee online reporting, education services and member newsletters.
Online reporting can allow you to view your account details 24 hours a day, 7 days a week. Their website could show you things like:
your overall account value
details of the underlying investments and their values
frequent updates (for example, daily) for the above valuations
performance figures for your account and for each investment option
details of fees and transactions for your account
consolidated asset allocation of all investments
insurance cover information.
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