How to choose a super fund for your pension

If you’re in the market for a super pension, it’s tempting to stick with what you know and use your existing super fund, but you could be short-changing yourself.

Of course, low fees and good investment returns are as important for a pension account as they were when you were accumulating super savings, but there is a lot more to selecting the right retirement product.

Whether you’re looking for your first pension, considering changing providers or wanting to add another retirement income product to your existing solution, the following tips are designed to help you make a choice that could set you on the right track for life.

Step 1: Select the type of pension you want

With life expectancy continuing to increase, the risk of running low on savings in later life is front of mind for many people.

When choosing a pension product (or products), consider whether your priority is guaranteed lifetime income, the flexibility to set your own payments and withdraw lump sums as needed or a mix of both.

Using a lifetime pension for at least part of your savings could improve your Age Pension entitlements, with only 60% of the purchase price assessed as an asset, and 60% of income payments counted in the income test. When you reach 84 and have held the product for a minimum of five years, the amount counted in the assets test reduces to 30% of the product’s purchase price.

A lifetime product is often used in combination with a simple account-based pension so you can enjoy both guaranteed income (from the lifetime pension) and the flexibility to change annual pension payments and make lump sum withdrawals as your needs change (in the account-based pension). You can hold both types with the same super fund or with two different funds.

Step 2: Look for a transfer bonus

The one good reason to stick with your current super fund into retirement is that it might offer you a transfer bonus. While the name of this boost varies from fund to fund (it’s often called a ‘Retirement bonus’), the concept is the same.

The bonus is a refund of money that has been set aside to pay tax on capital gains that are expected to occur in the future – when assets that have increased in value are sold.

When you move your money into the retirement phase from an accumulation account or transition to a retirement pension and retain the same investment option, the obligation to pay this tax is removed. The assets are moved into the tax-free retirement phase, and when they are sold, there is no tax on the gain. This means the money that was set aside to pay tax can be returned to your account.

If you have a large balance, the value of the transfer bonus can be significant, so it is worth keeping in mind. Some funds cap the bonus they provide, and others don’t.

Not all funds offer this feature. If retirement is still a while off, it’s worth checking whether your fund pays a transfer bonus or has a competitive pension offering. If not, there’s time to switch to one that does.

You may be required to be a member for a year or so before converting to a pension to be eligible for a boost – because it takes time for money set aside to pay tax on your future capital gains to accumulate. Generally, the longer you have been a member of the fund and in the same investment option (or mix of options), the bigger your boost will be.

Step 3: Consider what you need from the investment menu

The investment return you receive throughout retirement usually makes an important contribution to your income level and how long your savings last.

Are you a highly engaged and educated investor who wants the option to invest directly in listed shares and exchange-traded funds (ETFs)? Or are you happy to leave selecting individual investments to the experts with a fund that offers a suite of premixed options? Wherever you sit on the spectrum, there should be a pension product offering what you’re looking for.

If you’re considering a bucket strategy to draw income from more stable assets while the remainder of your pension is invested more aggressively, there are even products available that can manage it for you, so you’re not required to continue making active investment decisions throughout your retirement. Our research uncovered EquipSuper, Brighter Super and VisionSuper as funds offering this service.

If you will be using some of your savings to invest in a lifetime pension that is not linked to investment markets, you won’t need to select an investment strategy for that portion.