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Superannuation
Superannuation may be the most important investment asset for Australians, yet it is also the most ignored. Therefore most Australians are missing out on a vast range of benefits built into the Superannuation system. The benefits, if used could make a significant difference to your lifestyle in retirement.
Why it’s ImportantThe Government can no longer afford to support 69% of people over 65 whose principal source of income is government pensions.^ Compulsory Superannuation was therefore legislated to assist (force) Australians to begin saving for their own retirement.
With 9% of gross wages being paid into Superannuation funds, it is probably the single largest amount that most Australians regularly save towards their retirement. That is until their children leave home and they finally have some disposable income again. By then they’re in the 50s and ready to retire. So when retirement day comes, the vast majority of Australians will be relying heavily on their accumulated Superannuation to support their lifestyle dreams.
Important but IgnoredDespite the “fact” that the vast majority of Australians will rely heavily on their Superannuation in retirement, most Australians do not understand it. Therefore they also do not maximise the benefits it could provide. Why? Well if your employers were anything like my first employers, your options regarding Superannuation were not explained to you. So, your Superannuation was paid into the company fund and once a year you received a statement written in a language other than English. Customarily, you then shrugged your shoulders, “filed” the statement and just trusted that the company was looking after your money.
Who’s looking after your largest investment?Until recently most Superannuation was paid wherever the employer wanted it to be paid. Their main aim was usually to minimise the cost burden of administering the fund. So they generally set up their own fund, appointed some internal trustees, and invested all employees into the same investment assets.
Do they have your best interests at heart?Consider these observations:
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Employers are people too, so most of them did not understand Superannuation either
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Superannuation Guarantee payments are an extra cost to employers, not an extra benefit. So it is easy for their motivation to be cost reduction.
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It is not usually their core business, so it is easy for Super to fall down the list of priorities.
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You’re an individual, with individual needs and dreams. Yet your Super may be invested in the same investment asset as everyone else in your company.
With that in mind, how could they have your best interests at heart?
So What?Some consequences of the above, which you may not be aware of:
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Fees for administering the investments are usually paid for by the employees, not the employer. This reduces your account balance.
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Superannuation is an annoying distraction for employers, so they rarely compare their fee deal to market to ensure you receive maximum value.
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Few people read their annual statements so there is little pressure on the employers to focus on the investment return rather than the fees. Your investments may be earning you less than they should.
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The chosen investment may be too conservative for young employees, or those with high lifestyle goals. This lower risk may mean lower returns and less money at retirement.
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The chosen investment may be too aggressive for employees close to retirement, meaning they could lose money they were not prepared to lose.
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Your employer doesn’t understand all of the incentives and benefits of Super so they don’t inform you of what you’re missing out on.
The benefitsPaying attention to your Super could make a huge difference to your retirement lifestyle. A lower fee by 1% p.a. or conversely a higher return by 1% p.a. could provide you with tens, even hundreds of thousands of extra savings in retirement.
In addition you could save hundreds, or even thousands of dollars in tax each year along the way by investing your savings in Super rather than outside. And, contrary to popular belief it is quite easy to minimise the tax on your Super when you retire; sometimes even to zero!
What you can doEffective 1st July 2005, many Australians are able to choose where their Superannuation is paid. So you now have the ability to do the things your employer may not have adequately done, such as:
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Compare your fees to the rest of the market
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Compare your returns to the rest of the market
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Choose Superannuation investments that match your tolerance of risk
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Nominate an entirely new Super fund that matches your needs and gives you value for money
Choosing a Super fund can be easy, and you don’t even need to understand how Super works to do it. In our Super Seminar we share the key elements you should compare when choosing your Super fund, plus some traps to watch out for. We also explain how Super works, the incentives the Government gives you to save for your retirement and how to choose which are right for you.
If you’re not the DIY type and prefer to get someone else to do the work FinDre also offers a Financial Planning service. The Superannuation advice services offered include:
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Comparison of your existing funds and advice on rolling over
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Selection of an entirely new fund
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Analysis of your new employer’s Super fund when you change jobs
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Advice on making the most of the government incentives
Superannuation advice is also included in our full financial plan.
Footnote
^ ABS Cat 6523, Household Income and Income Distribution, Australia, 2003–04
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Matt Hern trades as FINDRE
(Empowered Wealth Pty Ltd t/as)
ABN: 21 592 525 720
Phone: 08 9467 7320, Fax: 08 9463 7848
PO Box 259, Bull Creek, Perth, Western Australia 6149, Australia
Website: www.MattHern.com.au
Blog: www.Money-Guide.com.au
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