Don’t ignore Super till it’s too late
You may be aware that the 2016 Federal Budget contained far-reaching announcements affecting superannuation – perhaps the biggest changes since Peter Costello’s budget back in 2006.
Although the changes were announced a while ago (except for one that has since been dropped) they are not due to take effect until 1 July 2017/. So in the meantime many of us simply forgot about the changes and (if you’re like me!) cast them aside in our minds – to be considered at a later date by ‘future Peter’ (if at all!).
A major concern raised by the current Australian Government, economic commentators, and financial institutions is the significant lack of engagement the average Australian has with their superannuation.
Employers see compulsory superannuation payments as nothing more than another tax whereas many, and in particular – younger employees, simply don’t identify with their super because they don’t need to access to it for possibly another 30 – or more – years. So currently – there is no sense of ownership, and that’s a problem.
This lack of engagement is highlighted by the fact that a significantly high proportion of people do not choose their own superannuation fund, but simply rely on their employer’s ‘default’ fund instead.
In many ways this lack of engagement is fuelled by the never-ending changes that seem to be a key feature of Australia’s superannuation landscape. Individuals simply lose interest.
And perhaps the younger ones are simply taking the lead from their parents.
While the first superannuation fund was established in the mid-1800s by the Bank of NSW (now Westpac) for their then employees – universal superannuation has only been around since 1985.
As a result, many of those retiring today have only had superannuation for a part of their working life. This helps to explain why the average superannuation account balance of a typical Australian at retirement is still modest – around $292,000 for men and $138,00 for women. Clearly, for many people approaching retirement today, some reliance on the government’s age pension will be a feature of their retirement income.
Putting off the decision to engage with superannuation until later in life can have a detrimental effect on the quality of life we can expect to live in retirement.
However, by doing a couple of really simple things, the growth in your retirement account can take on a life of its own.
Here are a couple of simple things you can do:
1. Make additional contributions – by entering an arrangement with an employer to contribute a small additional portion of salary to superannuation, even if it is just 3%, can make a significant difference to a superannuation balance over time. And after one or two pays, you won’t even notice the reduced income.
2. Understand how your super is invested – default superannuation funds provide a default investment option that may be too conservative for you. As superannuation is a long-term investment, you can often afford to be a little more aggressive in the way funds are invested. You will generally have time on your side to ride out the peaks and troughs that are a feature of investment markets.
3. Consolidate super – If you have more than one superannuation account (often as a result of changing jobs) consolidating all your superannuation into one account can help save on fees. But a word of caution: before transferring any super, check to see if you might be losing valuable insurance cover. This is one aspect that warrants some good advice in the future.
4. Check the fees – all superannuation funds charge fees. Understand the fees you are paying and ensure they represent value for money. Don’t be paying for features and services you don’t need.
5. Read your statements – each year superannuation funds must send members a statement. Check them to ensure your contributions are being correctly allocated, and that your funds continue to be invested in an appropriate manner. You will be surprised just how quickly your account will grow over time.
Most importantly, become engaged with your super. It is there for you – use it to your advantage. And if you are still not inspired to become engaged, do yourself a favour and get an experienced professional adviser to be engaged for you!
By Peter Kelly