Question

Q1 Discuss advantages and disadvantages for the following:

a) Consolidating super funds

b) Having multiple super funds

c) Life-cycle funds as an investment option for superannuation

d) Balanced funds as investment option for superannuation

e) Salary sacrificing to superannuation

f) After tax contributions to superannuation

Answer 1

a) Advantages :-

1. It is a great retirement savings strategy.

2. Here money is in the hands of professional or expert's.

Disadvantages :-

1. Money will be locked for a predefined period.

2. Super funds management fees is high.

b) Advantages :-

1. Lower tax rate during retirement.

2. Tax effective savings.

Disadvantages :-

1. It may reduce your overall retirement income because you are paying multiple fees.

2. These are not always cheaper.

c) Advantages :-

1.Life-cycle funds offer maintenance free retirement investing approach.

2. Assets allocation adjusted to become more conservative.

Disadvantages :-

1. Difficult to build a fund for those who enter late in life.

2. Majority of the savings will be locked for a predefined period.

d) Advantages :-

1. Best for first time equity investors who do not have much knowledge.

2. By balancing your exposure towards debt and equity they reduce the investment risk.

Disadvantages :-

1. Cost is high for those who invest directly.

2. Returns are lower than equity funds.

e) Advantages :-

1. Stable and consistent returns.

2. It helps you to easily diversify your investment.

Disadvantages :-

1. Amount contributed is not accessible until you meet a superannuation condition of release.

2. Lower income could mean reduced benefits from your employer.

f) Advantages :-

1. Non concessional contribution can be done which is done after tax.

Disadvantages :-

1. After tax can affect your take home pay and your net contribution to super.

2. If you exceed the super contribution cap additional tax and panelties may apply.