There has been a spotlight on Superannuation recently, with revelations of misbehaviour by retail fund managers coming to light as a result of the Banking Royal Commission.
ASIC (the Australian Securities and Investments Commission) is looking into how deals are struck between employers and super funds in Australia, following a year in which default superannuation arrangements became a point of focus.
Additionally, the Productivity Commission Inquiry Report released last month identified several notable shortcomings of our $2.7 trillion superannuation system:
- While some funds consistently achieve high net returns, a significant number of products underperform, even after adjusting for differences in investment strategy.
- Evidence of excessive and unwarranted fees in the super system.
- A third of accounts are unintended multiple accounts. These erode members’ balances in unnecessary fees and insurance.
- The system offers products that meet most members’ needs, but members lack simple and salient information and impartial advice to help them find the best products.
- Not all members get value out of insurance in super. Many retirement balances are eroded by duplicate or unsuitable policies.
The report has certainly highlighted critical issues in the industry.
One of the resulting recommendations the Productivity Commission made was to dismantle the existing default system and replace it with an expert panel who would choose a ‘best in show’ shortlist of funds, however while improving the default system it could also create other issues.
You can only trust yourself with your Super
Superannuation is politicised from both sides of government, so truly meaningful changes may only be a pipe dream.
The biggest risk Australians’ face to their superannuation is their lack of understanding of the system. In today’s busy, fast-paced world, finding the time to really sit down and understand something that seems very far-off or elusive is not exactly a top priority for most people. Unfortunately, this lack of understanding directly contributes to the foul play that is coming to light.
Getting started with protecting your Super
I cannot stress enough that you need to look after yourself and protect your Super. To get started, I would recommend these basic steps:
- Search for and combine multiple accounts. Most funds have a free search feature you can take advantage of to find out if you have multiple pockets of Super floating around.
- Add up the fees
- This can be confusing as many are tucked away or hidden. If you are struggling to find or understand these, don’t hesitate to seek help. Your Super fund or financial advisor should be more than happy to explain these to you.
- While fees have trended down over the past several decades, there are plenty of high fee products still around. As a benchmark, be wary of fees that total to over 1.5%.
- Assess performance by comparing to the appropriate benchmark. If you have a self-managed super fund (SMSF) with assets worth less than $500,000, check to see if you could be getting better returns in a regular fund.
- Be willing to make the effort to change if necessary. I often find with my clients that the biggest barrier to changing Super funds is the emotional labour of it rather than the actual act of changing over.
Understanding your Super’s performance
I was catching up with a cousin of mine who I hadn’t seen for years. He is now retired, and his retirement funds are in an industry fund from the industry he had worked in. He told me how his retirement Super ‘out-performed’ in the GFC (or, didn’t lose as much money as the others) and was one of the best performing funds there were.
“Great!” was my response. “How do you know that?”
“Well the industry fund said so and my advisor tells me” was his response.
I did some research on the fund. The performance was average, not only through the GFC but also across the entirety of the investment period. Certainly, average is fine, and much better than below average. However, does this match up with his perception of its performance?
For something as important as superannuation, I would argue that it is essential that the consumer has an accurate (and honest) understanding of their fund’s performance.
For those currently in the workforce, your Supers’ investment period will be measured by decades, not years. This means every percentage point of performance counts and whoever you are entrusting to look after your Super – the biggest asset many will ever own outside a home – needs to be up for the task. If not, I urge you to go elsewhere and keep looking.
If you would like help understanding your superannuation or creating a retirement plan, please get in touch with Allan at email@example.com or 07 3398 4888 on to book your free consultation.