Superannuation is an incredibly useful way of saving for your retirement – but how do you know if you’re in the right fund? Jeff Bresnahan of SuperRatings helps you to navigate through the complexities of superannuation.
I’ve been with my super fund for 15 years. As I’m approaching 60, I’m wondering: should I start to look at the pensions offered by the same fund, or is it more beneficial to consider pensions that different companies are offering? Is there a simple way to compare the returns on different funds and products?
A. To quote an old adage, there is no time like the present to review your financial circumstances; particularly as you approach 60. Given the massive range of fees, charges, investment returns and product features offered by various funds, it is always best to do some comparative work. Whilst some funds might have a great accumulation product, it doesn’t always follow that their pension products are also first class, and vice versa. Definitely include your current fund in the process, but also consider what other pension products and features might suit your needs. Features such as being able to change payment frequencies and access emergency cash at short notice need to be taken into consideration, along with the more obvious fees and returns.
SuperRatings’ SuperSavvy website provides information on each pension product including comparisons of fees, investment returns and product features, so this could be a good place to start.
Although I don’t think that accessing?a pension is quite right for me at the moment, I do like the look of one of the pensions offered by a different fund. Should I make the move now or sit tight until I actually want to start drawing down on my super?
A. You can have both a pension account and a superannuation account to manage your financial situation, so starting a pension early often makes sense. This
is because there are tax advantages associated with a pension product, even if you are not quite ready to draw down your super. The main advantage is that all earnings on your pension account are tax-free, rather than being subject to 15 per cent tax when in the superannuation phase. This means that in most cases (presuming you invest in a similar investment option) you will earn more in your pension account.
In addition, once you reach the age of 60, any amount you draw down from your pension is treated as tax-free income, so you won’t pay tax as you do on your normal income. In addition, any amount you draw from your pension, but don’t spend during the year, can be re-contributed back into your superannuation account up to age 65 – helping to build your overall balance.
There are other considerations, such as the effect that starting a pension may have on your Centrelink benefits – so before doing anything, find an advisor with whom you feel comfortable. Together you can start to map out a plan to meet your income and retirement needs. Remember, Transition To Retirement (TTR) strategies are often very effective tax-wise, but if you miss the boat prior to retirement, you can’t always go back and fix things – so early planning is crucial.
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