(see also How YourShare works with Personal Superannuation and SMSF's)

The term personal superannuation is often used to describe additional superannuation investments outside of your compulsory 9% superannuation guarantee, or superannuation investments by a self employed person. However with the advent of the Federal Governments ‘Super Choice’ scheme all of your superannuation should be thought of as Personal Superannuation, that is; its your investments, your nest egg for the future, your lifestyle that is impacted by the investment performance, and your responsibility.

Achieving the maximum return within your comfort zone, out of your superannuation is imperative to the lifestyle you can afford in your retirement. As an example a difference of 1% performance in your superannuation investment may not seem like much, but over time the difference between a return of say 6% and 7% on $1,000,000 over 10 years is $176,304.00, and over 20 years that escalates to $662,549.00. So achieving the most out of your superannuation within your risk tolerance is imperative to the lifestyle you can afford in retirement. After 30 June 2007, post-tax contributions to superannuation will be limited to $150,000 per annum.

There are two ways in which superannuation funds attribute and pay benefits to their members:

DEFINED BENEFITS FUNDS

Defined benefit funds define in the funds trust documents the benefit that is payable to its members. These funds are typical of employer-sponsored funds. The benefit payable on retirement is usually determined by factors such as, the retiree’s length of employment with their employer, their seniority level, and the average of their last three years salary. With this type of fund the benefit that must be made available to the member upon retirement does not depend on the performance of the investments held within the fund. Defined benefits funds are becoming less common, with Accumulation funds being the most popular method of investing for new superannuation savings.

ACCUMULATION FUNDS

Accumulation funds determine the benefit paid on retirement by the sum total of your contributions made into the fund (personal and 9% superannuation guarantee), plus the investment earnings attributable to the contributions in the fund. In this type of fund the member carries the risk and reaps the rewards of the investments performance. The end result depends on the type and quality of the investment decisions the fund makes. Some funds may focus on shares with higher risks and potentially higher returns, while others may focus on more fixed interest investments with potentially more stable but lower returns.

THERE ARE FOUR BROAD TYPES OF SUPERANNUATION FUNDS:

Government / company funds – limited to people working for a particular employer

Industry funds – open to people working in a particular industry. Many of these funds now allow public access, so you no longer have to work in the relevant industry.

Managed superannuation funds – funds run by large financial institutions such as AMP, BT, AXA & Colonial, and open to all. Many of these funds offer portability between jobs and typically the ability to switch and choose the investment mix of your superannuation investment.

DIY funds – Self Managed Superannuation Funds (SMSF’s).                                           

Please see About SMSF’s and How YS works with Personal Superannuation and SMSF's.

FEES

Superannuation funds charge fees for administering your account, and managing your superannuation investments. The majority of funds also charge fees to enter, exit, or switch between funds. These fees have a big impact on your funds long term performance.
The range and level of fees varies between the different superannuation funds. But as a general rule the higher the fees charged the greater the funds investment returns will need to be to compensate for the fees flowing out of your superannuation savings.

Many industry bodies quote fees as a Management Expense Ratio (MER). The MER is the total of annual management fees and ongoing expenses of the fund, expressed as a percentage of the total funds under management. MER’s can range from 0.5% to 3%. So for example if your total superannuation savings is $100,000 and your funds MER is 1.0%, then each year the fund deducts 1.0% of $100,000 or $1,000 from your superannuation savings. The majority of these fee’s are fixed regardless of the funds performance, so if your fund loses 10% ($10,000) or gains 10%, the MER will still be deducted each year on the balance of your account.

TRAILING FEES

Many funds pay trailing fees between 0.25% – 1.1% to the advisor or body that introduced you to the superannuation fund or managed investment. These trailing commissions are paid out regardless of who the introducer was, the level of service received and where there is no introducer are kept by the fund managers. These fees are paid out of the MER that is deducted each year from your account.

Master trusts, Wraps, Portfolio administration services, etc, also deduct fees, and again these fees are taken from your account each year, and are based on the total amount of your superannuation fund or managed investments regardless of your funds performance.
As an example assume, that you have $200,000 in superannuation savings through a Master trust, and that each year the trust deducts a management fee of 1%, and that 0.6% of that is made up of the trailing fee paid to your advisor or introducer. In this example, the Master Trust would deduct $2,000 and pay $1,200 to your advisor or introducer each year.

If you would like to get YourShare of this money back each year click here.

YOUR FUNDS PERFORMANCE

Superannuation funds publish statements advising how the fund has performed each year. Below is a table outlining the impact that different compounded returns % over time have on your superannuation.

In order to determine how your fund has performed relative to its peers you can compare your funds performance to other funds in the same sector or category. This is easily done by looking in the finance section at the fund tables in news papers or magazines. Alternatively if your fund is an index fund, you can compare the % return generated by your fund against the % return generated by the actual index over the same time period. For example a fund performance that is designed to track the Australian All Ordinaries share price index, could be compared to the actual All Ordinaries index to determine the funds relative performance.

Superannuation is a long term investment, so its important to view performance in the long term. If your fund has performed poorly in the short term, then its not necessarily time to panic, but if your fund has performed poorly relative to its peers over the longer term, then its time to think about switching between funds or asset allocations within your fund. Also check your funds Product Disclosure Statement (PDS) to see if there are any fees associated with switching funds.

ACCESSING YOUR SUPERANNUATION

Your entitlement to the investments held within your superannuation fund is known as your benefits.
Generally superannuation benefits must remain in your superannuation account until you reach your earliest superannuation preservation age. The government is gradually increasing this age from 55 to 60. For those born after 30/06/1964 the preservation age is 60.

There are several possible categories of benefits held within a superannuation fund, however the majority of money held within superannuation now is termed your ‘preserved benefit’. Once the conditions of release are satisfied this benefit can be paid out in either; a lump sum, a pension or a combination of both. (currently reasonable benefit limits (RBL’s) apply to the amount of benefits that can be paid out at the superannuation concessional tax rates, however the RBL's were proposed to be abolished in the 2006 / 2007 budget proposals).

The decision about how you receive your superannuation benefits is entirely yours, however the government has been encouraging Australians, with significant taxation incentives, to take the majority of these funds in the form of pensions, in an effort to relieve the drain on the public purse from the government funded old age pension.

There are several different types of pensions available; allocated pensions, life pensions, term pensions, term annuities or life annuities. Allocated pensions are the most flexible and popular form of pension available today. The other forms of pensions pay a set fixed amount, often indexed, for a set number of years, or for life, and may or may not have a reversionary element to any dependants or spouse should the member die.

Allocated pensions on the other hand offer greater flexiblility. Within minimum and maximum limits, allocated pensions allow the member to choose how much income is received, or “allocated”, each year. Members may cash out lump sum amounts (as an ETP) all or part of the pension at any time, and on the members death the balance remaining may be paid as a pension to a dependant or in a lump sum to the members estate, in effect the only real restriction is that the member must take the minimum pension payment prescribed each year. Please click on the link to find out more About Allocated Pensions.

BENEFICIARY NOMINATIONS

Beneficiary nominations are important. When your superannuation account starts you will be asked to nominate a beneficiary, as times change so may the person you would select as your beneficiary. It’s a good idea to check regularly who you have nominated to ensure your beneficiary remains correct. The trustees of the fund are not bound to pay the nominated beneficiary, unless you are holding a binding nomination. A binding nomination means the trustees must abide by your choice and lasts for three years.

  
Please ensure you read fully the Product Disclosure Statement (PDS) of any pension, superannuation or investment product you are considering of investing in.

YourShare recommend anyone who has questions or is confused about superannuation, savings or investment to seek professional advice and contact a reputable fee for service advisor. If you would like to speak to an associated Fee-for-Service Advisor please click this link. Using a financial advisor is about paying a professional advisor to help you with your superannuation, investment and savings goals. Its not about seeing an advisor once, paying an upfront fee then also paying them for the next 10 years. Its your money make it work for you, not someone else.

For more information on superannuation and managed funds please also refer to Fido, the consumer website of the Australian Securities and Investment Commissions (ASIC), under Superannuation.

Disclaimer
The information in this document reflects YourShare Financial Services Pty Ltd ('YourShare') understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The information is not, nor is it intended to be, comprehensive or a substitute for professional advice on specific circumstances. The information given in this document is of a general nature and has not taken into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision a prospective investor needs to consider, with or without the assistance of a professional adviser whether the advice is appropriate in the light of their particular investment needs, objectives and financial circumstances.