One up (My SMSF) against Super Funds

Like most individuals, during my early (working) years, I took no interest in my Superannuation. Back then, I had no idea about who my super provider was, where or how it was invested, or how much fees (excessive) was I paying.

As I educated myself I learnt that very few (less than 1%) active funds manage to beat their benchmark index over a long period of time. I also realised that excessive fees charged by actively managed funds erode the wealth of the uninformed investors.

Upon learning the fallacies (part-1 and part-2) of actively managed super fund, I rolled over both my and partners super to ING Direct Living Super, which allowed me to invest in broad-market based ETF. ING living Super allowed me to invest in listed ASX 200 securities (stocks) and selected ETFs.

As I gained experience I found the choice of ETFs offered by ING too restrictive. I was unable to invest in VAS.AX (cheapest ASX 300 ETFs) since it was not on the list of selected ETFs.

ING Direct Living Super restricts investor to a maximum of 20% of total account balance in any one share. This is a well though out policy which protects the investor from the mistake of putting all eggs in one basket. However, when it comes to ETFs, this makes no sense since investing in a single ETF like VAS.AX provides a wide diversification of 300 stocks.

ING direct charges a reasonable trading platform fee (fixed) of $180 per annum and has a minimum brokerage fee of $20 for every trade. To keep transaction costs down, I let funds accumulate in my super throughout the year and purchased additional shares once every year. As a result of 20% rule, I was forced to make four trades (instead of one) which increased my brokerage fees from $20 to $80 per year.

The fact that me and my partner were required to maintain separate super (APRA) accounts meant that together we were paying the same set of fees twice.

Because of the reasons outlined above, I established my SMSF in late 2013.

It is now time to review the performance returns against the performance of actively managed super funds. For the year, 2014 My SMSF (highlighted in the table below) delivered a return of 11.70%. The return figure is net of all costs:
  • Transaction cost ($20)
  • Super Admin cost ($0) 
    • My Super administration provider waived off the super admin fees for the first year. If I consider the administration fees ($699), then the net return comes at 10.30%.
  • ATO levy 
  • Tax (@15%)
The table below ranks the performance of 119 super funds between 1st Jan 2014 to 31st Dec 2014.
Investment OptionAsset ConsultantGrowth Assets (%)1 Year
QSuper BalancedQSuper6112.7
VAS ASX 300NA11.70
IOOF Balanced Investor TrustRussell7010.9
UniSuper BalancedUniSuper7010
Kinetic Super AggressiveTowers Watson76.59.9
AMP Future Directions BalancedTowers Watson739.8
Intrust Super BalancedJANA759.7
Statewide Super MySuperJANA809.7
Kinetic Super GrowthTowers Watson629.6
Statewide Super Active BalancedJANA709.6
VicSuper Growth (MySuper)Frontier759.5
CFS FirstChoice GrowthMercer809.5
CFS FirstChoice BalancedMercer709.5
Telstra Super BalancedJANA749.4
HOSTPLUS BalancedJANA769.3
MLC GrowthJANA799.2
Catholic Super Mod. AggressiveJANA809.2
REI Super Trustee Super Balanced (MySuper)Ibbotson799.1
MTAA My AutoSuper (Balanced)Access67.59
MLC Horizon 4MLC68.59
Energy Super BalancedJANA759
Tasplan MySuper BalancedMercer709
AustralianSuper BalancedFrontier/JANA768.9
JANA AssertiveJANA808.8
Auscoal GrowthMercer808.8
Plum Pre-Mixed ModerateJANA708.8
Equip Balanced GrowthJANA708.8
MLC MySuperJANA708.8
LGSS Balanced GrowthJANA708.7
AustSafe MySuper (Balanced)JANA70.58.7
AMP RIL BalancedTowers Watson698.7
Catholic Super Balanced (MySuper)JANA708.6
UniSuper Capital StableUniSuper308.6
MLC ModerateJANA708.5
CBUS Growth (Cbus MySuper)Frontier738.5
Suncorp GrowthIbbotson808.5
IOOF MultiMix Balanced GrowthRussell728.5
JANA ModerateJANA708.4
REST DiversifiedJANA808.4
VicSuper Capital StableFrontier408.4
OnePath OptiMix BalancedMercer/TW738.3
Mercer GrowthMercer688.3
BUSS (Q) Balanced GrowthFrontier72.58.3
GESB Super Balanced GrowthJANA748.3
RBF Tasmania BalancedJANA738.3
CareSuper BalancedJANA698.3
Plum MySuperJANA708.3
AMP ipac SD BalancedTowers Watson698.1
Aust Catholic Super & Ret MySuper BalancedTowers Watson748
Maritime Super BalancedJANA708
ESSSuper GrowthTowers Watson808
EISS DiversifiedMercer707.9
Vision Super Balanced GrowthFrontier74.57.8
HESTA Core PoolFrontier737.8
GESB Super BalancedJANA627.8
Telstra Super ConservativeJANA407.8
REST CoreJANA767.7
Energy Super Capital ManagedJANA357.7
LUCRF MySuper BalancedTowers Watson767.6
Sunsuper BalancedMercer70.57.6
FSS (NSW) DiversifiedTowers Watson707.6
AMP Future Directions ConservativeTowers Watson327.5
Tasplan ST DefensiveMercer307.5
Sunsuper GrowthMercer79.57.3
OnePath OptiMix ConservativeMercer/TW337.3
QSuper ModerateQSuper367.3
Optimum GrowthIbbotson807.2
Auscoal StableMercer407.2
Russell BalancedRussell747.1
CFS FirstChoice ConservativeMercer307.1
Equip ConservativeJANA307.1
Mercer Growth PlusMercer66.57
Intrust Super StableJANA307
Statewide Super ConservativeJANA307
Russell Balanced OppsRussell75.56.9
Mercer Conservative GrowthMercer266.9
AMP RIL ConservativeTowers Watson276.9
AMIST BalancedJANA706.8
AustralianSuper StableFrontier/JANA366.8
Commonwealth Bank Group Super Mix 70Towers Watson706.7
RBF Tasmania ConservativeJANA35.56.7
Asgard SMA BalancedAdvance/TW706.6
NGS Super Diversified (MySuper)n.a.706.6
MTAA ConservativeAccess276.6
EISS Capital GuardedMercer306.6
IOOF MultiMix ConservativeRussell306.6
BT MM BalancedAdvance/TW706.5
AMP ipac SD SecureTowers Watson306.5
REST Capital StableJANA356.5
HOSTPLUS Capital StableJANA306.5
AMIST Capital StableJANA306.5
Suncorp ConservativeIbbotson366.5
CBUS ConservativeFrontier316.4
LGSS ConservativeJANA306.3
MLC ConservativeJANA306.3
Legal Super ConservativeTowers Watson356.3
JANA ConservativeJANA326.3
Vision Super ConservativeFrontier356.3
BUSS (Q) DefensiveFrontier386.3
HESTA ConservativeFrontier35.56.2
FSS (NSW) Capital GuardedTowers Watson256.1
CareSuper Capital StableJANA32.56.1
AustSafe Capital StableJANA326
GESB Super ConservativeJANA376
Plum Pre-Mixed ConservativeJANA305.9
Catholic Super ConservativeJANA255.9
Russell ConservativeRussell36.55.8
Optimum Consv GrowthIbbotson365.7
MLC Horizon 2MLC29.55.7
Optimum Consv Growth PlusIbbotson365.6
Maritime Super ConservativeJANA305.6
NGS Super Defensiven.a.325.5
REI Super Super StableIbbotson365.4
Asgard SMA DefensiveAdvance/TW305.4
ESSSuper ConservativeTowers Watson355.4
LUCRF ConservativeTowers Watson305.4
Aust Catholic Super & Ret ConservativeTowers Watson295.2
Sunsuper ConservativeMercer275.2
Commonwealth Bank Group Super Mix 30Towers Watson305.2
BT MM ConservativeAdvance/TW305.1
* The performance figures are from Chant West
* Returns are expressed net of investment fees and tax
* Growth and conservative growth portfolios are defined as having growth assets of >60% <=80% and >=20%<=40% respectively

Full Disclaimer: I am not a financial planner. The views expressed in this post are all mine and they may or may not suit your needs. Please do you own due diligence. I do not make money on any of the products suggested in this post.

It’s you super, so take control

Nearly every Australian knows that they have right to choose the super fund into which the employer pays their super. However, most people believe that in order to take control of their Superannuation, they have to establish an SMSF. This is not true.

In my previous posts (part-1 and part-2), I presented evidence that very few (less than 1%) active funds manage to beat their benchmark index over a long period of time. I also wrote about how excessive fees charged by actively managed funds erode the wealth of the uninformed investors.

Super is a means of saving for retirement which is, in part, compulsory. The Federal Govt. has provided tax concessions and other benefits which generally make super one of the best long-term investment vehicles. It’s you super, so take control.

This post is a step-by-step guide to managing (taking control) of your super without needing to establish an SMSF.

This post assumes ‘ING Direct Living Super’ as the super fund. Australian Super also offers a similar ‘choice’ fund with ‘Member Direct Investment Option’. I encourage my readers to learn about ‘ING Direct Living Super’ and ‘Australian Super Member Direct Investment Option’ choice funds. In my opinion, both of these products are good and will enable you to take control of their super. Please spend some time before deciding which one suit’s you better.

Let's get started.

Step-1: Understand what ING Direct Living Super has on offer

ING Direct Living Super is an APRA regulated superfund.

ING Direct Living Super allows investors to invest in Cash, Term Deposit and Balanced Option (50% cash and 50% in shares) with no administration or investment fees.

ING Direct Living Super also allows investors to invest in individual listed securities from S&P/ASX 200, selected ETFs and LICs. At the time of this writing, this incurs a monthly fee of $15 and a brokerage fees. Unless you are an experienced investor, I would recommend my readers to abstain from investing in individual securities (stocks) and stick to broad market ETFs.

Although not recommended, investors can also access market research and subscribe to premium research for a monthly fee of $20. The reason I do not recommend subscribing to market research is to keep the cost to bare minimum.

ING Direct Living Super also provides insurance cover (TPD and Death). I urge my readers to perform your own due diligence (if needed, talk to financial planner) to work out if you require insurance through super and if so, the level of cover required.

ING Direct Living Super will not allow you to invest directly in property.

Step-2: Open a Living Super account
  1. Go to http://www.ingdirect.com.au/superannuation/living-super.html and click 'Open Living Super' button
  2. If you are not an existing ING customer, select No
  3. Apply for 'Super Account' and fill in other information
    1. Provide Tax File Number Declaration form if you are under the age of 60. It’s not mandatory to provide a Tax File Number. However, if you don’t, your contributions could be taxed at the highest marginal tax rate.  
  4. On the 'Investment Details' page:
    1. Select option 'You choose' in response to the question, 'How would you like to invest your money'
    2. Select 'Yes' in response to the questions, 'Do you want to trade from your listed securities menu?
  5. On the next page, note your Client ID and choose a 4 Digit Pin
If you wish to trade shares through your account you will need to open a share trading account. You can do this as part of your ING DIRECT Living Super account application.

When you open an ING DIRECT Living Super account, a Cash Hub is established for you. Your Cash Hub is an interest bearing account held via ING DIRECT and is used to settle transactions.

The Cash Hub must hold a minimum of $500 or 1% of your account balance (whichever is greater and capped at $10,000), plus an additional amount equal to the fees and insurance premiums due to be paid in the following two months.

Please keep in mind that your account will be closed if it has had a zero balance for 1 year.

Step-3: Arrange SG contributions to be paid into your ING DIRECT Living Super account
Most Australian employees are eligible to choose the super fund into which their employer Superannuation guarantee (SG) contributions are paid (these contributions are also known as compulsory employer contributions). ING DIRECT Living Super can accept SG contributions.

In order to have your SG contributions paid into your ING DIRECT Living Super account, all you need to do is complete the ‘Super Choice’ form online and submit this to your employer. The form can be found by logging in to ingdirect.com.au, then clicking on ‘My Super Finances’ and then ‘Contribute to your Super’.

Step-4: Check if you have lost super
If you think you have lost super, or are not sure - go to SuperSeeker (ATO) website and enter your Name, date-of-birth and tax file number (TFN). Alternatively, you can walk into most banks in Australia and they will be more than happy to help.

Step-5: Rollover your existing super
You can rollover your benefits from other complying super funds into ING DIRECT Living Super at any time. You should consider the impact your request may have on any insurance cover you hold in your other fund and any termination or withdrawal fees that apply before making a decision to rollover your benefits. ING Direct Living Super does not charge any withdrawal fees as opposed to Australian Super which charges a fee of $35.

Rolling over your super into ING DIRECT Living Super is easy. Simply log in to ingdirect.com.au, click on ‘My Super Finances’ and then ‘Rollover your Super’. In most cases you can complete your old super fund details and submit your rollover request online. If you are rolling over from an SMSF you will need to send in a completed Rollover Benefit Statement with your rollover cheque.

Step-6: Set up your investment options
When you first open your ING DIRECT Living Super account you will have two choices for how you want to invest your money:

We (ING) Choose - allocates your future contributions and rollovers to the Balanced option (subject to the Cash Hub minimum). If you are invested in the Balanced option and your account balance is below the required minimum total account balance of $5,000 for more than six months, your balance may be transferred to the eligible rollover fund (ERF)and your account will be closed.

You Choose - Allocates 100% of your future contributions and rollovers to the Cash Hub for you to invest. ING Direct Living Super will take care of all the administration, compliance and reporting requirements, so you don’t have to.

Select ‘You Choose’ as your investment option.

After your first contribution or rollover is received you can invest in managed investments, Term Deposits or purchase shares. After you open a super account you can change your contributions mix online at any time.

Term Deposits
If you would like to invest in term deposit, simply log on to ingdirect.com.au, click on ‘My Super Finances’, then ‘My Investments’ and then ‘Invest in Term Deposits’.

Trading Shares/ETFs
You can invest up to 80% of your total account balance in shares, and a maximum of 20% of your total account balance in any one share.

To trade shares online, simply log in to ingdirect.com.au and select ‘My Super Finances’ and then ‘Trade Shares and Exchange Traded Funds’.

You can view the list of ETFs you can invest in using ING Direct Living Super here.

Of the available ETFs. I recommend investing in the following ETFs on an annual basis:
Assuming if you have a super balance of 50k, the total cost for the year would be
  • $180 for trading platform.
  • $80 for brokerage fee (4 trades a year)
  • 0.209% (average of four expense ratio) of 40k, which comes to a total of $83.6.
The total fee you will be paying as a percentage of total assets would be .69%, which is cheaper than most of the super funds. In addition, by investing in broad market ETFs you are virtually guaranteed to outperform a vast majority of managed super funds. 

Step-7: Set up your Tax option
You can elect either one of the following options at the time of the transaction and each may have a different result for capital gains tax purposes:
  • First In First Out (FIFO);
  • Minimise capital gains (this option only applies when you have held the listed securities for longer than 12 months).
If you have held the listed security for greater than 12 months, the CGT discount will apply and the net tax withheld will be 10% of any capital gain.

Step-8: Review and update portfolio annually
Unfortunately, there is no one-size-fits-all portfolio that meets the need of every investor. As a rule of thumb, it is recommended to invest 'roughly your age in bonds'. If you are 30, 30% of your portfolio should be in bond and the remaining (70%) in stocks. Once a year rebalance your portfolio.

Step-9: Stay the course
You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets.When value of your portfolio goes down, it can be difficult to hold onto your nerves. But always remember - it's perfectly normal for the markets to go up and down. Ignore the media and tune out the noise! Do not panic and stay invested because the long-term can be very rewarding, if only, you stay the course!

How It works
When you place share orders through the broker, the costs or proceeds of share trades are settled through your Cash Hub (after deducting brokerage). A minimum of $500 applies to share purchases. No minimum sell amount applies to shares, subject to broker limits and market rules.

The brokerage cost is either $20 or 0.13% calculated on the value of the trade (whichever is greater) per transaction. Brokerage forms part of the settlement amount e.g. if the shares cost $4,000 then $4,020 will be deducted from your Cash Hub for that transaction.

To undertake share purchases you must have, at the time you place the instruction, sufficient funds available for investment in your Cash Hub to cover the purchase price plus any share trading fees. Amounts held for the settlement of share purchases will be quarantined in your Cash Hub for two business days from the time your purchase order is completed, and then transferred for settlement. During this time the amount quarantined in the Cash Hub cannot be used (e.g. withdrawn or switched to another investment option). Proceeds from the sale of shares will not be available in your Cash Hub until the third business day following the sale.

You can invest up to 80% of your total account balance in shares, and a maximum of 20% of your total account balance in any one share. Over time, due to market volatility, the value of your shares relative to one another and relative to other investment options in your portfolio may change. This means you may exceed the maximum investment limits allowed for the Shares investment category. If you exceed the maximum 80% of your total account balances in the Shares investment category you won’t be able to make any additional purchases of shares until you rebalance your portfolio and bring it back into line within the allowable investment limit. If you exceed the maximum 20% of your total account balance in any one share you won’t be able to make any additional purchases of that share.

Exchange Traded Funds (ETFs)
With ETFs you can access local and international share markets, or a variety of other assets, in a single trade. An ETF is traded on the ASX just like any other share but is structured like a traditional managed investment. ETFs contain a collection of securities and usually represent a particular market index (e.g. the S&P/ASX Small Ordinaries index).

ETFs explained
ETFs are constructed with reference to a specific index and generally will hold similar securities and weightings to the underlying index, so they can closely replicate its performance. Market participants ensure ETFs trade at prices that are closely aligned to the consolidated net asset value of the securities in the underlying index.

While ETFs offer diversification, which can reduce risk, they are still subject to market risk. Financial markets can be volatile and investment values can rise and fall. The level of risk will depend on the types of securities held in the ETF’s underlying portfolio.

Dividends
Dividends and distributions paid on shares and other listed securities you hold will be paid into your Cash Hub. Dividend reinvestment is not available.

If a listed security is removed from the approved list, you will not be able to invest additional amounts into that listed security. However, you will generally be able to retain or sell your existing investment in that listed security. If a share is delisted or deregistered from the ASX you will not be able to retain that share.

Other Disclaimers
  • An investment in ING DIRECT Living Super is neither a deposit nor liability of ING Bank (Australia) Limited or any of its related corporations and none of them stands behind or guarantees the fund.
  • The insurance cover offered by ING DIRECT Living Super is provided by MetLife Insurance Limited
  • The share broker for ING DIRECT Living Super is Australian Investment Exchange Limited, a Participant of the ASX Group and Chi-X Australia, trading as CommSec Adviser Services. 
  • The custody of the managed investment assets within ING DIRECT Living Super and unit pricing are provided by State Street Australia Limited. 
  • The administration of the accounts within ING DIRECT Living Super is provided by Financial Synergy Holdings Pty Ltd ABN. 
Full Disclaimer: I am not a financial planner. The views expressed in this post are all mine and they may or may not suit your needs. Please do you own due diligence. I do not make money on any of the products suggested in this post.
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