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Ask an Adviser - Choosing A Super Fund For My Salary Sacrifice?

Q&A Superannuation 15 May 2017

How do I choose the super fund for my salary sacrifice? I can salary sacrifice for additional super up to $13K. Which fund should I use? I'm looking for low risk option with index fund or similar... 

2 Answers

Vote Answer

5

Hi Henry

Thanks very much for your question.

Firstly, may I congratulate you on taking an interest in your superannuation as unfortunately many Australian’s don’t do so until it is often too late to make any meaningful impact on their retirement savings.

Without knowing your full details it is difficult to be precise, however, generally speaking all, open to the public, superannuation funds could accept your salary sacrifice contributions. It is highly likely that your existing fund into which your employer is paying the mandatory 9.5% superannuation guarantee would also be able to accept your salary sacrifice contributions. You could check this by contacting your fund. As a general rule it is not advisable to have multiple superannuation funds as this can result in a duplication of fees and charges.

In regards to seeking a fund with low risk options, again the majority of funds provide a broad range of investment choices to satisfy the needs of their clients. Without knowing your particular circumstances I am unable to make any recommendations regarding specific funds.

I would however strongly encourage you to seek advice from a qualified financial adviser for three very important reasons.

Firstly, they will undertake a fact finding process to understand your current situation and ask a series of questions regarding your retirement goals and objectives. This will help them to determine the time horizon you have to work with and the level of retirement funds you might need to meet those goals and objectives.

Secondly, they will undertake what is commonly referred to as a risk profiling assessment. This involves some further questioning and discussion about your thoughts and will give them some insight into what you mean by “a low risk option”. There is further value in this discussion as often there can be a mismatch between what a client is seeking to achieve with their retirement savings and the level of risk they are prepared to take towards achieving it. A financial adviser will be able to discuss this with you and outline any options that you should consider to meet your retirement objectives.

Lastly, armed with the above information a financial adviser will be able to guide you as to the type of investment options and superannuation fund that will best meet your needs.

General Advice Disclaimer
Note: This advice is of a general nature only and does not take into account your personal situation and all of your objectives, your financial situation or needs. Before making any decisions you should seek advice from a professional, qualified financial adviser.
Ben Matusch
Ben Matusch Henderson Matusch

Adv Rating 75% Cust Rating 0% Reviews 0

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Vote Answer

3

Henry this is a great question which we often get from clients.  There is a lot of noise in the market around the choice of superannuation fund.  The Australian Superannuation Market now has more than $2 Trillion.  Which is why there are many providers who are looking to help manage your retirement savings.

When it comes to superannuation choice we use a Values Based Financial Planning approach with our clients.  This ensures that your strategy aligns to what is important to you in life.  Your investment approach is also linked to this and covers off on any ethical elements.  As well as any obstacles that may get in the way of you achieving your longer term outcomes.

In your question, you mention a desire to have a ‘low risk option with index funds or similar’.  Risk is an important element when building your financial framework, and choosing the right fund!   

With all investment, there is a perceived risk associated with the return you expect to achieve.  Understanding the investment options you are in, their types of returns, and using diversification is a methods of reducing your risk. 

Once you have these foundations in place you can then start to compare funds in the market based on what you are trying to achieve.  

We talk to clients about three types of superannuation funds in the market. 

1 – Industry Based Super Funds

Industry based fund generally offer a low fee and set and forget investment approach.  As a general comment, Australian Super, which is one of the largest Super Funds in the market.  Has been adding more direct investment options to add greater flexibility.  This includes the use of index based Exchange Traded Funds and Listed Investment Companies.  I think we will notice more Industry Funds adding extra options like these overtime.  

2 – Semi Managed Super Funds

In the Retail Super Market generally the fees have been coming down over the last few years.  They also offer a broader range of investment options if this is important to you.  Most of these funds are also ‘for profit’ funds.  We call this a 'Semi Managed' approach as you don’t have to be your own trustee but you have greater ability in the investment selection process.  Your total value in super will depend on what your total fee is.  These funds can be cheaper than industry funds in certain circumstances.  

3 – Self Managed Super Funds (SMSF)

The last type of Super Fund is the ever popular Self Managed Super Funds.  I will disclose now that I am a proud SMSF Trustee and Member!  You control the trusteeship and investment approach which allows for using index funds.  But you also have responsibility to ensure the fund complies with the Superannuation Laws.  For these to compete with Industry and Retail funds on a fee level, I generally say you need $200,000 plus in super asset.

Henry, based on what you have mentioned any of these approaches could work for you.  

It all depending on your values and the level of engagement you want with the day to day management of the fund.  You also need to consider the fees, as well as other elements such as insurance and binding nominations. 

Check out the resources online at www.moneysmart.gov.au. Seek out further advice and start your journey to being free around your money and creating wealth with understanding.

 

Scott Malcolm has been awarded the internationally recognised Certified Financial Planner designation from the Financial Planning Association of Australia and is Director of Money Mechanics.  Money Mechanics is a fee for service financial advice firm who partner with clients in Canberra, Melbourne and Sydney to achieve their life and wealth outcomes. We are authorised to provide financial advice through PATRON Financial Advice AFSL 307379.

General Advice Disclaimer
Note: This advice is of a general nature only and does not take into account your personal situation and all of your objectives, your financial situation or needs. Before making any decisions you should seek advice from a professional, qualified financial adviser.
Scott Malcolm
Scott Malcolm Money Mechanics

Adv Rating 100% Cust Rating 96.91% Reviews 43

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1 comments

"Hi Henry, you have asked a very important question and the answer to your question will in part be determined by whether you need a hand or want to go it alone. As you know there is an enormous amount of investment choice and it is difficult to work through all the options in the totality of your entire situation. I make no secret in my strong belief in the case for the use of index funds but there are many opposing views in this area on ways to invest. As you are from the ACT, depending on who you work for and the super scheme you are currently a member of, will determine the level of superannuation support you receive and the cap you have available. If you are in the Public Service in one of the old Defined Benefit Super Schemes then there is already some complexity that will increase next financial year with the introduction of "notional" employer superannuation contributions. If you are seeking assistance then you should think about the level of support you are seeking and how much you are prepared to pay for it. Once you have this clear in your mind then you are ready to make some enquiries. I would suggest five tips: 1. think holistically before determining your specific options and a great way to do this is through a financial advice health check, This might help you work out what you don't already know. 2. find someone with experience that you think you can trust, 3. find someone who is prepared to charge you a reasonable fee for the services you require, 4. think very very carefully about the level of risk you are prepared to take with your investments, and 5. find an investment solution that has solid long term performance and is extremely cost effective as high fees can severely erode long term financial outcomes. www.financialadviceshop.com.au General Advice Disclaimer Note: This advice is of a general nature only and does not take into account your personal situation and all of your objectives, your financial situation or needs. Before making any decisions you should seek advice from a professional, qualified financial adviser."

Bill Waller Bill Waller 00:36 on 20 May 17

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