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.

3 comments :

  1. Outstanding reference. I've just gone through this process with ING Direct Living Super, and while scary, I highly recommend it to _everyone_. The feeling of taking control of your retirement fund is amazing. Some things in life shouldn't be blindly entrusted to others -- money is one of those things.

    It's also great to cut through the confusion and jargon and demystify investment. This stuff isn't rocket science, but unfortunately, most people are incredibly ignorant when it comes to finances. Society fails to teach us as children and continues to fail us as adults. The only solution is to take responsibility for our individual financial wellbeing.

    Fortunately, as you mentioned in the article, ETFs go a long way to mitigate risk by diversifying investments. I'm not too happy with all the trading restrictions in Living Super, but at the moment, it's more cost effective for me than a SMSF.

    ReplyDelete
  2. Good article - I agree with your philosophy. Althought not sure why you suggest investing in both Vanguard MSCI Australian Large Companies Index ETF (VLC) AND SPDR® S&P®/ASX 50 Fund (SFY) as they pretty much have the same underlying stock. I would suggest greater diversification by investing in Emerging Markets or World ex-US ETFs. Does anyone have an opinion on Australian Super direct investment account?

    ReplyDelete
  3. Secondly, it's frustrating that ING and AS only let you invest a maximum of 80% of Super via ETFs - why not more?

    ReplyDelete

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