Super funds for low-income earners

Finding a super fund that offers you good value and healthy returns is important for everyone, but perhaps especially so if you’re on a low income. So, how do those on a low income choose the best super fund to help them save for retirement?

There are a number of government tax initiatives to help low and middle-income earners, which you can use to pay extra money into your super. But it’s also important to make sure you are in the right fund for your circumstances.

If you work for an employer then you may already be a member of a super fund. This could either be your employer’s default fund or one you nominated. If you meet certain requirements, your employer will be making regular contributions to that super fund based on a percentage of what you earn.

If you are self-employed then there is no requirement to set up a super account for yourself. But you might want to consider doing so as there are tax concessions you can get on any contributions you make.

In either case, you need to consider whether the super fund you are already in meets your needs for the future. If it doesn’t, then you can consider switching to another fund that does.

What to look for in a super fund if you’re on a low income

There are two main things you need to look at if you’re a low-income earner looking to join a super fund: how much it charges in fees and how well its investing performs.

Low fees

A super fund with low fees could help you maximise the amount of money you’ll have come retirement. Conversely, high fees could potentially eat away at your super balance and make building for a comfortable retirement that bit harder.

Super funds typically charge a range of fees on a regular basis. These can include administration fees, investment fees (also referred to as management expense ratios or MERs), potentially a performance fee depending on how well your fund performs for the financial year, and other fees such as for switching your investment options.

If you have income protection, life or total and permanent disability (TPD) insurance through your fund, you may pay a small regular premium for these as well.

Check the Product Disclosure Statement (PDS) of any super fund you’re considering to see if it charges any other kinds of fees that could potentially eat away at your balance over time, particularly if those fees are much higher than other funds’ fees.

It’s also worth checking your super statement to see what your current fund is charging you in fees. If you’re not sure what the figures mean on your statement then call your super provider and ask them to explain.

Strong performance

A fund that delivers strong investment performance throughout your working life will also help your super grow, but not all funds perform the same.

Canstar’s superannuation comparison tables show the investment performance (updated monthly) of a wide range of superannuation products in Australia and could be a good starting point for assessing fund performance. The Australian Prudential Regulation Authority (APRA), which regulates super funds, carries out an annual performance test and names the funds found to be underperforming.

Performance is usually given as a percentage which shows how much the fund delivers in investment returns each year. Even a fraction of a percentage point difference in performance can have an impact on how much super you will have available when you decide to retire. It could even be the difference between a modest or a comfortable retirement.

But remember, the performance numbers you see only measure how a fund has performed in the past. Strong past performance does not necessarily indicate a fund will perform well in the future, so you need to consider how that performance has varied over time and could vary in the future.

If you’re weighing up which super fund to use for saving for retirement, you could also consider Canstar’s Superannuation Star Ratings. The ratings take into account super funds’ investment returns minus fees and other costs, as well as the features and support services offered to fund members, such as insurance and the customer service channels that are available.

How can low-income earners boost their super balance?

If you’re worried about not having enough super in retirement, there are a few things you can do that could potentially increase the rate at which your super grows year-on-year.

If you can afford to, ask your employer to use part of your pre-tax pay to make an occasional or regular contribution into your super fund, on top of the mandatory contributions your employer makes. This is known as salary sacrificing or salary packaging, and the extra money paid into your fund is taxed at a low rate of just 15%, provided you don’t exceed your concessional contributions cap.

If you’re self-employed, Moneysmart notes that any concessional (pre-tax) contributions you make to your super are tax-deductible.

Check with the Australian Taxation Office (ATO) to see if you’re eligible for any government contributions to your super, such as the low income super tax offset or a super co-contribution. If you supplied your Tax File Number to your super provider then these government contributions should apply automatically if you’re eligible, but it’s always useful to double-check.

If you’re in a relationship (married or de facto) and your partner earns more than you, they could consider making contributions to your super.

Read more: Spouse super contributions: How do they work?

If you’ve ever changed employers you may have more than one super fund in your name. It’s easy to check if you have any other accounts. If you do, see if you can consolidate those funds into one to save on paying duplicate fees. But before doing so, make sure you check to see if you aren’t losing out on other features, such as insurance, from any funds you are about to leave.

Some of these options may have tax implications for you, so consider contacting the ATO or seeking professional tax advice if you would like more information.

To summarise, choosing a super fund is a personal decision, but regardless of your income it could be worth considering factors like fees and performance if you want to grow your balance as much as possible during your career.

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