Not to say that all hope is lost. Just most of it. Put more money in bank, and dont purchase that new LCD. Your financial future will be better for it.

In general these fees and/or charges will fall into several types of categories. By entering into the super fund, you may attract an entry fee. While on the other hand, you may also be charged a fee if you leave or switch to another fund. The fund may also charge you a percentage or flat/fixed fee for maintaining your fund while generating capital growth.

The exact amount of these fees is very important and should be closely examined. A small difference in a certain percentage of a fee or charge may amount to a huge difference to the total you are left over with at the end. And as mentioned before, these fees can be vary immensely depending on which superfund you choose. Remember, these fees are in the fine print, so make sure you read exactly what you are being charged for.

If you are unsure of any of the fees that your super fund is charging you, it is often best to contact them directly and enquire about the nature of the charge. Under the Financial Services Reform Act 2001 (FSRA) which was established on the 11 of March 2002, the obligations for superannuation funds and managed investment schemes are applied to the client at the point of sale and on an ongoing basis. The FSRA highlights that super funds must provide a range of information to prospective members in point of sale disclosure documents. These will often be in a form of a Product Disclosure Statement, which usually appears in the form of a small brochure.

Read your Product Disclosure Statement carefully as it outlines all the Fees and Costs charged to you by your Superannuation Fund for maintenance of your contributions.

Defined Benefit Funds

A defined benefit fund is one that pays a retirement amount that is preset, or as the name suggests ‘defined’. This preset amount is set according to the rules outlined by the fund and typically is establish by a fund formula which multiplies the member’s final average salary based on the last few years of retirement by the number of years that they have been a member of the fund or worked for an employer. This benefit can then be either paid out as a lump sum or as a pension. This type of fund is usually for a more risk adverse investor because the member’s benefit does not depend on the performance of the fund manager but rather on the member’s salary close to their retirement.

This would mean that the employee in a defined benefit fund would receive a specific multiple of their salary at retirement according to the amount of years that they have been a member of the fund or worked for the employer. An example would include a person would was 18 when they joined a particular employer and whom retired at the age of 65. Their multiple would be 47 by 15% which would equal 47 x 0.15 = 7.05. Thus, if there final salary was $30,000 then the fund would pay 7.05 x $30,000 = $211,500. The fund may also preset the multiple figure when the person becomes employed to the company or joins the fund as a predefined rule. This would be outlined in the funds Product Disclosure Statement and would usually be written as “upon retirement, the person will receive a lump sum which is 8 times their final average salary in the last 5 years.”

These funds are in their last stages of life however, because they have proven to be quite expensive and have been found to be advantageous to certain members.

Accumulation or Contribution Funds

A accumulation or contribution fund is typically one where the member contributes funds across the entire period of their working life. These contributions are then invested on the members behalf with management fees and costs depending on the success of the funds investments. It is similar to an insurance company in that funds are pooled and invested by skilled fund managers in order to make substantial profits for its members on retirement. This is typically the most common type of superannuation fund in Australia and is also a growing area for investment professionals who are seeking to gain large profits from charging excessive management fees.

While the idea of running your own DIY super fund may seem appealing to you, there are a number of things you must first consider firstly because a DIY is not for everybody. The most important consideration is your knowledge and experience of investing, financial planning and the way DIY super works. There are many requirements and other drawbacks for setting up a DIY fund:

1. DIY or self managed super funds must contain four or less members. Within this fund each member becomes a trustee to the fund. The members of such a fund are not allowed to be employees of each other unless they are related and then they cannot receive any form of payment for their role as a trustee.
2. DIY or self managed super funds must pass what is called a sole purpose test. This test ensures that benefits from any investments cannot be derived prior to a members retirement age. This is the way that the Government and Tax Office deter everyone from switching to DIY superfund’s purely tax reasons.
3. The superannuation provisions which all self-managed super funds must comply with – as detailed in the Superannuation Industry (Supervision) Act (SIS Act) introduced in 1993 to supervise the superannuation industry. Contributions and earnings which fail to comply with the SIS Act can result in tax rates of more than 3 times the normal 15% rate. The most common breaches include a failure to pass the sole purpose test, failure to separate super and personal assets and using the money from the fund for personal or business related purposes.
4. By running a DIY managed super fund there are also a number of costs involved which include setup costs and annual fees and charges for accounting, auditing and ASIC lodgment fees. The average cost in establishment fees is around $1,000. While the annual fees in maintenance of the fund can be about $2,000. Because of the significance of these fees, it would be silly to have a DIY fund if the value of the fund has such a small value as the costs would far outweigh the benefits.
5. Some DIY funds can trick investors into believing that they have produced strong returns when in fact they have not. They do this by not factoring in the associated fees and costs of running the fund and by producing return figures return figures straight off the market. It is important that you always ask for investment performances figures factoring in what you have paid the fund managers to ensure that you gain an accurate return figure on how the DIY fund is performing. If you feel that this figure is unacceptable, then you can choose your next course of action.

For looking after your super the investment firm will charge you management or administration fees. These can be large or small depending on which superfund you have selected. Usually these fees are in the fine print, so make sure you read exactly what fees and charges are being aimed at you. By law, a super fund is required to disclose any information about their product’s to you when you first join the fund. This usually occurs in a Product Disclosure Statement.

From July 1, nearly 5 million Australians are eligible to choose where their employer pays their 9% superannuation guarantee (SG) contributions. This means that Australians now have more freedom of choice as to where and how their super is looked after.

They include:

• Contributions tax
• Tax on Earnings
• Tax on Withdrawal

Contributions tax is the tax that is paid if you decide to make any additional contributions to the superfund. This represents, for example, any income or money which has not already been taxed. By contributing excess or additional cash into the fund, it will attract a15% tax rate on deposit into the fund. It is important to note that this amount of tax may be increased depending on your income and other assets which you hold. Check with your accountant or financial advisor for the exact limits and corresponding tax rates.

Note: There is no contributions tax if the money which you are placing into the superfund has already been taxed. For example money which has been left over from your income after you have paid tax on it already.

Earnings from the super fund are taxed at 15%. This is the maximum amount and one of the keys to successful super fund management, as this rate is significantly lower than that of the tax on earnings outside a superfund. This % can be even lower if franking credits are taken into account (see share basics and dividends).

All super funds must also pay tax on any amount which is withdrawn from the fund, when you retire, or after you have passed the age limit where you can withdrawal any amounts from your fund. If the money in your super was taxed at the concessional rate on the way in, there may be some tax to pay when you withdraw the benefits or earnings received from the fund. These rates can vary depending on the way in which you wish to receive your super as a form of payout. However generally speaking, any contributions which are withdrawn from the fund are taxed at 15% (plus the 1.5% Medicare Levy).

While the primary investment aim of most Australian’s remains the purchase of “the great Australian Dream” or owning our own home; the growth in the way we view superannuation has significantly changed in stature since its introduction in 1992. Super is fast becoming one of the largest and most important investment vehicles that the majority of all Australians will hold throughout their lifetime. The significance of saving and the supporting ourselves into our years of retirement means that superannuation is compulsory product that must be taken seriously. It is imperative that it is fully understood considering that it will tend to be the second largest investment in your life after your house. This reiterates the importance of every Australian finding the right super fund which caters for their direct needs and relevant risk levels.

The easiest way to make sense of what super is to picture it as a managed savings account. The money within this account is invested so that it can grow to fund your retirement. The contributions placed into the super fund are invested in a diversified range of assets such as shares and property.

Generally, superannuation is not paid out before retirement (termed the Preservation Age) and consequently it is a fantastic long term method of generating a greater level of financial security into retirement.