Tip of the iceberg for dud super funds
THE RECENT Productivity Commission report on the health of the superannuation sector was pretty scary. And it's only going to get worse when the Banking Royal Commission turns its blowtorch onto super funds in the next few weeks.
Two main issues from the Productivity Commission really hit home to us … that there are so many dud superannuation funds ripping off their investors; and that you basically need $1 million in a self managed super fund to make it worthwhile against being invested in an industry super fund.
The Federal Government decision to cap management fees is a good decision as is its commitment to adopt many of the recommendations from the Productivity Commission.
But despite superannuation being the second biggest asset (behind their home) of most Australians, it continues to be so misunderstood. We reckon it's a combination of the complexity of the system and the fact our compulsory contributions are taken out of our wage almost by stealth.
We know the boss makes super contributions on our behalf but we don't give it a second thought.
It's that disconnect with our superannuation (until we retire) which has allowed the superannuation sector to get away with so much. Because we as investors don't focus on super as much as we should, we don't put enough pressure on the trustees and fund managers to be better.
So now is the time to focus on that nest egg, take charge yourself, and make sure you're not being ripped off.
So dig out your last superannuation statement and follow this action plan;
Track down any "lost" superannuation
You just never know. With over 31 million super accounts in Australia today, and an average of 1.5 accounts per person there is a huge chance you have money in account you've lost.
Just go to your www.my.gov.au account and double check.
Understand the snapshot
One of the first things you'll see in your statement is a snapshot of your account.
Your account balance will be shown at the start of the statement period, usually 1 July on the previous year.
You'll then see a record of all the contributions and withdrawals you've made over the year, the total value of fees, insurance premiums and taxes you've paid, and your total investment earnings.
It's always worth double checking your employer contributions to ensure you're getting paid the right amount. If not, follow up with the boss of HR.
At the end of this, simple maths will give you your closing balance (hopefully much higher than where you started). While this is a handy reference, it's light on detail, which means you need to read past this page.
Choose your investment options wisely
This section provides important details on how your money is invested.
Remember, most super funds offer a number of different options that range from low to high risk, so make sure you're comfortable with where your money is invested.
They also vary significantly in cost, and generally you'll find the fees for more complex, riskier investments will be higher to justify the higher expected returns.
In a confusing twist, you'll also see a 'unit value' and 'unit price' next to the balance of your investments.
That's because super funds pool your money together with other investors before they invest it in the market. This pool of money is divided up into units, which you're allocated based on how much money you have invested.
Superannuation comparison websites such as www.Canstar.com.au, www.morningstar.com.au, www.chantwest.com.au and www.superratings.com.au look at performance and fee levels between funds and offer a good benchmark.
Check those pesky fees
As the Productivity Commission report showed, high fees can have a huge impact on how well your fund performs over the long-term, so this is another section that demands close attention.
For some reason, most funds will hide this information after a long list of the transactions on your account. It's almost like they have something to hide.
All funds will charge some combination of an administration fee and an investment management fee (sometimes called an ICR or MER). You may also be paying a fee to an adviser, as well as legacy fees like a contribution fee.
At this stage it makes sense to compare what you're paying against other funds in the market (it's a good idea to calculate the total fees you pay as a percentage of your balance).
Remember, when it comes to fees, the lower the better. As a general rule of thumb you shouldn't be paying more than 1 per cent in fees for a balanced fund.
Do you want Insurance cover?
Most super funds provide some level of insurance for their members automatically, known as default cover. This is generally any combination of life, disability and income protection insurance.
It's important to review this cover on your statement.
Check the total benefits available to you and review the premiums you're paying to make sure it's appropriate for your situation.
The Federal Government has moved to stop compulsory superannuation cover for under 25 year olds … oldies need to assess their own needs and tell the fund.
Make a Beneficiary nomination
If you don't make a beneficiary nomination, your super fund will decide how your account is distributed in the event of your death, so ensure you nominate where you'd like it to go. They will generally go with the wishes in a will … but just make the process clean and easy for them.
And finally, remember to review your personal details to make sure your fund has up to date contact details on file.
That way you won't run the risk of 'losing' a super fund down the track.