There are two phases for superannuation – the accumulation phase and the retirement phase. The accumulation phase is the phase we are all familiar with, where we contribute to superannuation.
We can pay just 15 per cent tax on concessional contributions of up to $30,000 per year, which is usually a very tax-effective way of getting money in, on top of the 11.5 per cent of our salary we’re obliged to contribute every year.
Those funds are then invested with the goal of driving compound investment returns for our future. Once your money is in super, it is very tax effective, as you only pay 15 per cent tax on income it generates, so it multiplies untouched for decades.
Most people don’t understand their superannuation very well, so the government has set up standardised ways that funds invest that are called “My Super” accounts, and they publicly benchmark how those are performing from fund to fund. You simply go to the YourSuper Comparison Tool on the ATO website and select your fund and compare it with others to see.
Then there’s the retirement phase – the phase when you start drawing down on your superannuation using a combination of three different options.
You can draw an income stream, called an account-based pension; purchase a guaranteed income stream, called a lifetime or term annuity, or you can simply draw out lump sums.
The government benchmarks superannuation funds in the accumulation phase. However, there is no public benchmarking in the retirement phase.
You can transfer up to $1.9 million into the retirement phase of superannuation in your lifetime, a limit which is known as the ‘transfer balance cap’. The rest gets held in accumulation and you pay higher tax.
Once you enter the retirement phase, your money is invested completely tax-free. That is, there’s no income tax and no capital gains tax on the money you hold in your retirement-phase account.
There’s one catch, and that is that you have to draw down a minimum amount each year, depending on your age, starting at 4 per cent of the balance from age 60 to 74 and increasing from there. It is designed to encourage you to spend your money on your retirement cost of living while you’re alive, rather than hoard it for your bequests.
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There’s only 1.3 million people who have elected to open a retirement-phase superannuation account today in Australia, despite nearly 5 million people calling themselves retired, possibly because many people just don’t understand they can.
The government offers public benchmarking for superannuation funds in the accumulation phase. However, there is no public benchmarking in the retirement phase. People can’t access government-supplied data to check whether their fund is performing, outperforming or underperforming – something that frankly becomes frustrating as you work out how to best position your super.
It’s important to know that retirement-phase funds almost always outperform accumulation-phase funds simply because of the tax status of the members. That is, the fund doesn’t have to pay income tax or capital gains tax for their retirement-phase members, so that money flows back into the fund’s performance metrics.
So, as you look at the performance metrics of the retirement-phase funds today, I want you to consider two things.
How your fund has performed over the last 12 months – so you can see their short-term success, which is good to recognise – and, more importantly, how that fund has performed over the long term.
We have to remember that superannuation is a long-term investment, and that we should not be moving funds around every year or two, but choosing a fund that knows how to get results over the long term.
All the numbers here are provided net of investment fees, so you see the returns flowing back to you after those fees, regardless of whether the fees are large or small. The fee that bites you is really the administration fees, which most funds try to keep pretty low these days.
According to industry analysts Chant West, the number one-performing growth fund for the year was CFS’ FirstChoice Growth Fund, with 12 per cent return over one year, closely followed by Brighter Super’s Balanced Fund with 11.9 per cent return and Russell Investments’ Balanced Growth Fund with 11.7 per cent return.
The best-performing balanced fund was CFS’ FirstChoice Moderate Fund, with 10.1 per cent return, followed by Russell Investments’ Diversified Fund with 9.9 per cent and Brighter Super’s Conservative Balanced at 9.8 per cent returns.
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For me, one-year performance is not what’s important. Sure, it’s fun to celebrate, but it’s the funds that can stick it over the long term, through good markets and bad, and come out with powerful long-term returns that really are doing the important work.
The top-performing growth funds in the retirement phase over 10 years are Commonwealth Super Funds’ (CSC) Aggressive, with 9.6 per cent return, Hostplus’ Balanced Fund with 9.3 per cent return and Australian Retirement Trust’s (ART) Super Savings Balanced Fund with 8.9 per cent return.
The top-performing balanced funds in the retirement phase over 10 years are Vision Super’s Balanced fund with 7.2 per cent return, AustralianSuper’s Conservative Balanced Fund with 7.1 per cent return and ART’s Super Savings Retirement Fund with 7.0 per cent return.
So why not take a minute to get out your super statement and compare your fund’s results? Won’t you feel clever if they’re doing a good job! And if they’re not, you know what you need to do.
Bec Wilson is the author of bestseller How to Have an Epic Retirement. She writes a weekly newsletter at epicretirement.net and is the host of the Prime Time podcast.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making financial decisions.
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