Superannuation

Superannuation is a government policy that forces your employer to skim ~10% (the Super Guarantee rate) off your salary and deposits it to your super fund. It was implemented by the Australian government to force individuals to save for retirement. It’s basically the Australian version of the US’ 401k. Generally, the superannuation contributions are subject to a much more lenient tax rate (~15%) than your marginal tax rate (which can be 40%).

You can access the money in your superannuation account after you reach the ‘preservation age’, which is when you’re age 55-60, however this varies. There are no (legal) ways to access your super account, barring some exceptional circumstances (on compassionate grounds, home deposits, etc.).

An excellent read: superdoneright.

• $\frac{2}{3}$ of people have never switched super funds/investment options and therefore stay in underperforming, high fee funds resulting in hundreds of thousands of dollars lost. Most people consider it too much of a hassle.
• Passive investing options offer better returns over many years and much lower fees.
• $40\%$ of super accounts are not consolidated, meaning that one person is needlessly paying huge fees to multiple super funds.
• Always ditch retail funds. Their fees are too high.

Super Funds

Super funds are financial institutions that manage your superannuation money and will invest it for you. Examples of super funds include UniSuper, SunSuper, Cbus Super, etc.

Super funds usually give you a choice of different investment options that differ in risk/returns (‘growth’, ‘balanced’, ‘conservative’, ‘ethical’, etc.). By default, the ‘balanced’ investment option will be chosen for you which spreads your money out across shares and cash, typically 70% in shares or property and 30% in fixed interest. Some super funds may allow you more granular control over which asset classes your money is dumped into. UniSuper, for example, lets you dump however much you want into international shares, Australian shares, property, cash, etc.

Retail Super Funds & Industry Super Funds

There are retail super funds and industry super funds. They differ in what they do with profits.

Retail super fund: distributes profit to shareholders. These are usually associated with banks. Some retail super funds include Suncorp, ANZ Smart Choice Super, etc.

Industry super fund: are not-for profit, so profits are returned to members. These include super funds like AustralianSuper, UniSuper, SunSuper. They’re called industry funds because they used to mainly be associated with specific industries, but they’re mostly open to the public now.

Historically (as of 2022, at least), industry super funds have outperformed retail super funds.

Picking a Super Fund

As advised by moneysmart, search for the super fund’s ‘product disclosure statement’ and consider the following properties:

• Investment return performance (look at the last 5 years and beyond)
• Fees. They’re usually deducted from your balance each month and can either be a percentage or fixed amount.
• Insurance. Super funds usually give some insurance coverage to members by default. They include: life insurance, income protection and/or disability insurance. A premium will be deducted from your super for having this coverage.

Consider using the government’s YourSuper comparison tool to pick out a super. Alternatively, you can use non-government comparison tools like Canstar, but remember that they’re a business and may run promotions for certain institutions.

Just pick a low-cost international index fund investment option. Switch to a different super fund if that option doesn’t exist. Which super fund you pick matters less than which investment option you pick.

Salary Sacrifice

An Australia-specific term for an arrangement between you and your employer where you trade a portion of your salary for some benefit from the employer, provided at no greater cost to them. Eg. Barefoot Investor recommends arranging a salary sacrifice to increase the employer’s super contributions to 15%.

Self-Managed Super Fund (SMSF)

SMSFs give you the freedom to invest in virtually any asset class. You could borrow and directly hold residential investment properties through a SMSF, something industry funds won’t offer to do for you.

Making mistakes by failing to comply with certain laws is very costly.