Expert SMSF insights
New Year’s Super Resolutions
By Graeme Colley
Happy New Year! Let’s hope 2021 will be much more positive than the last with its uncertainty and gloom. So let’s think about the future and positive changes we can make for the year ahead. Ad hoc New Year’s resolutions can be easy to make and full of throw away lines, but if they have serious aims, following through can be challenging – especially if there’s no real incentive or tangible benefit to be gained.
However, resolutions about superannuation can be different because a small change now can result in a real impact into the future. For some, it could be one of the positive ways to help kick off the New Year and be financially prepared.
Three things that could make a real difference include:
1. Choosing the right type of super fund
2. Consolidating super into the best performing fund
3. Making extra contributions to super
The right super fund
Finding a super fund to suit might sound obvious, but the majority of people go with their employer’s default option. According to the Productivity Commission report into the Efficiency and Competitiveness of Superannuation around 2/3rds of new entrants end up in the default superannuation fund option provided by their employer. However, the good news is this number is coming down as more young people take greater interest in what’s happening with their superannuation.
When choosing a super fund, look closely at the fees being paid, the performance of the fund and insurance. The MoneySmart website which is provided by the Australian Securities and Investments Commission suggests a 1% difference in fees now could contribute to as much as a 20% difference in the benefit payable in 30 years’ time. The MoneySmart website says:
“Choosing a super fund is a bit like dating. Pick the right fund and you'll be set for a long, happy and comfortable life when you retire. Set your sights on the wrong one and you're in for a world of pain.”
Some people end up with a different super fund for every job they’ve had. It is possible to bring super together in the one fund which can reduce costs and help boost the income earned on the super balance. The first thing is to find out the names of the funds which have superannuation in it. The easiest way is to use a MyGov account which includes a service offered by the ATO to help people find their super.
Before deciding to combine super into one account, check to see whether it makes sense and it’s possible to replace or transfer current insurance cover which may be lost because of 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 you make the contributions the greater the benefit from compounding returns. This provides more time for benefits to grow, for example, over 30 years, a relatively small increase in contributions can made a real difference to the amount received 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 anyone who qualifies. People earning up to $53,847 adjusted taxable income in a year 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 resolutions there are others that may be included in the New Year’s list such as setting your retirement goals, reviewing the investment mix in the fund or the insurance cover provided by the fund. One thing’s for sure any of these are bound to help boost the amount available for retirement.
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