Most funds have either an online application form or a PDF application form (this is usually found in the Product Disclosure Statement for the chosen fund) that you can complete. There are some things you need to have, or to have decided, before you submit your form:
- Your Tax File Number
- ABN for the employer
- Choice of Risk Profile, or Investment option
- Life and TPD Insurance requirements
- Income Protection Insurance needs
- Beneficiary nomination
In completing the application, whether by a PDF or online, after entering all of your basic personal details including Tax File Number, you will then need to make choices in regard to your super account.
Beneficiary Nomination
This is the person or people you wish to receive your benefit upon your death. Nominations can be binding or non-binding and most funds offer both options. A non-binding nomination means that the trustee of your super fund is not bound to pay your benefit to the person/people nominated, but will be guided by your direction, whereas a binding nomination means that the fund must pay to your nominated beneficiaries.
It is worth remembering that most beneficiary nominations lapse after 3 years, so you need to review regularly to ensure it remains current and still reflects your wishes.
Insurance
Insurance is optional, but most funds offer a default amount of life, TPD and income protection insurance. If you do not require insurance you should opt out, but make sure that you have proper advice from a qualified professional that you do not need insurance.
Most industry funds offer insurance on a unitised basis, where the sum insured will decrease as you age, while the premium remains reasonably level. There is usually also an option to take out insurance for a fixed sum. This is likely to incur a higher premium but may be a better option to ensure you have an adequate amount of cover.
For income protection insurance of more than the default amount, you will need to provide your annual salary and details of your occupation. The occupation has a bearing on the premium you will pay if you opt for other than default income protection insurance. You can choose a preferred waiting period i.e. the period to expire before your benefit begins to be paid. A shorter waiting period will result in a higher premium.
If you seek more than the default amount of insurance, you may need to complete health questions so that the fund can calculate your premium based on any health or occupation risks.
Investment Option
Funds offer a range of investment options from an automatic premix of asset types to a more customisable mix of asset types. Unless you really know what you are doing, you may be best to stick to premixed options. The basic premixed option is available for all risk profiles, which generally fall into about 5 main categories, with a multitude of variations between funds:
- Conservative
- Moderately Conservative
- Balanced
- Growth
- High Growth
Asset allocation refers to the mix of what is called ‘growth assets’ and ‘defensive assets’. Growth assets are assets that can grow in value, such as shares or property – they are generally higher risk but have a higher return potential. Defensive assets are lower risk, with potentially lower returns and usually relate to assets like cash, term deposits and other fixed interest investments like bonds.
The 5 investment options shown above have a different mix of growth and defensive assets, moving from low risk (Conservative) to high risk (High Growth). A Balanced portfolio, is typically middle-of-the-road in terms of asset allocation and may consist of 60% Growth assets and 40% Defensive assets, while a High Growth portfolio may have only 5% or so in Defensive assets and 95% more or less, in Growth assets.
Asset allocation with a higher proportion of Growth assets has the potential for higher growth, but there is a greater risk of negative returns and an increased level of volatility, or value fluctuation. An asset allocation skewed towards Defensive assets reduces the risk of negative returns but also protects against extreme volatility (price fluctuation), and returns over the longer term are likely to be lower.
Choice of investment option should be based on your attitude to risk, your investment timeframe, financial circumstances and your retirement goals. What is your attitude towards risk? Can you accept some shorter-term losses in order for higher returns over the longer term, or would you rather play safe so that the value of your account doesn’t decrease?
What is your investment timeframe? This is the period between the present and when you retire. If you have a long time until retirement, are you willing to accept some additional risk in order for a better long-term return that will provide you with a bigger balance at retirement, or would you prefer to have a smoother ride knowing that at retirement you will have a smaller retirement sum? If you only have a short time until you retire, do you want to risk what you have already accumulated by using a risky asset allocation in the hope that you will quickly accumulate a larger balance?
The selection of investment option is one of your most important decisions so far as your superannuation funds are concerned. Don’t take it lightly and do seek qualified professional advice to assist you to build your super balance so that you can achieve your retirement dreams.
Please note this article provides general advice only and has not taken your personal or financial circumstances into consideration. If you would like more tailored financial or superannuation advice, please contact us today. One of our advisers would be delighted to speak with you.