Superannuation is often something people put on the backburner and decide not to think about until a way down the track where they are closer to accessing it – but the sooner you get started the better off you’ll be. Join us this week as we discuss super and some things you can do to improve yours:

Defined Contributions and Defined Benefits

There is legislation surrounding how much super employers need to pay their employees in addition to their wage. Host Andrew Baxter notes that the current going rate is 10.5% of a salary going into superannuation. There are different rules for some different jobs however, as members of the defence force receive 16.5% while politicians also receive a little bit more than other members of the general public. This is the meaning of defined contributions where an employer has a set percentage of earnings they need to contribute to their employees’ super as well as their normal pay on a regular and short-term basis. Defined benefits are slightly different in that employees are assured of a certain percentage of their entire year’s pay to go into their super as opposed to a percentage of what they have earned over the course of a week or a month. The income required to pay out the group of beneficiaries must come out of the fund itself and if results have not been favourable, this can come at a cost to fresher members to schemes such as this.

Industry vs Retail Super

There are different superannuation types available for investors to choose from in the market. Industry super funds are funds that are designed for workers from a particular industry. The investments the fund goes into may include certain projects pertaining to that career as well as potentially other more typical investment options made by other superfunds. They tend to operate as the default for where people put their super in order to get it doing something but Host Andrew Baxter explains there are some shortfalls. Industry super funds are not-for-profit, meaning that sometimes they can be run quite inefficiently while their returns often have not stacked up to a reasonable level. Retail super is another popular option for superannuation funds and is often where a financial planner will point clients towards as opposed to industry super funds. Retail super funds often allow for more choice to investors and there is greater variety available, including more opportunity to increase your risk levels for potential returns whereas industry super is quite cut and dry as to what is offered. A notable downside to retail super is the fee structures that are often associated with them can be quite significant which over the long term can eat into your gains or exacerbate any potential losses that come your way.

SMSF

SMSFs are another option for investors which differ from the ones already covered in this episode. Host Andrew Baxter explains that you are the beneficiary while also being the director of the fund, hence making it a self-managed super fund. There are a couple of barriers which are important to consider before heading down the SMSF route. Firstly, the account balance needs to be fairly sizeable in order to justify an SMSF as they are not cheap to open up. The ideal minimum kind of size one might consider shifting to an SMSF with would be around the $250,000 mark which is quite a considerably sized super account. Secondly, if you are going to manage your own super it is important to have the right skillset to make sure that you are able to manage your risk. Superannuation is designed to accumulate over time to provide a nest egg for when you retire. Naturally, it is an important sum of money to make sure does not dwindle too much as if you are unable to retire, then you would have to get back into working which is likely not what you would want to do after retiring.