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Are you losing out on your super?

Ian Fox
Published by:
Ian Fox
Published on:
February 08, 2021
Modoras Wealth Management (VIC) Pty Ltd ACN 145 368 869
Are you losing out on super

Earlier this month I came across a report on some research by money educator and expert Vanessa Stoykov showing 10% of Australians don’t trust superannuation funds.

While that figure may seem modest, it’s nonetheless concerning.

After all, super is compulsory for most workers and is the vehicle that will fund retirement in many cases. Australians generally have a keen eye on the value of their home, the value of their bank account and investments and the level of their income. However we often see people with their eye off their superannuation.

Equating to over $2.7 trillion in assets owned by over 15 million members, it is certainly possible that an Australian’s superannuation nest egg will be one of the largest assets in their lifetime. And perhaps worth including on the list of assets to actively keep an eye on.

It is certainly possible that Australians’ distrust of super funds stems from the Productivity Commission’s inquiry into superannuation a few years ago. Focused on products and their return, the findings were alarming.

  • Ending up in an underperforming MySuper (default) product = 10 years’ lost pay

Due to the power of compound interest, a worker who ends up in the median bottom-quartile MySuper product would retire with a balance significantly lower than if they were in the median top-quartile product.

Cost to member at retirement: $502,000 or 45% less

Losing out on super - Underperforming MySuper default product

  • Paying for an unsuitable insurance policy = 2.5 years’ lost pay

The premiums that come out of members’ accounts erode their retirement balances.

The effects are worse for members on low incomes or who work intermittently, who continue to have premiums deducted from their accounts while not contributing to their super.

Cost to member at retirement: $85,000 or 14% less

  • Being a member of a high-fee fund = 2 years’ lost pay

Australians pay over $30 billion a year in fees on their super (excluding insurance premiums). An increase in fees of just 0.5% can cost a member tens of thousands of dollars.

Cost to member at retirement: $100,000 or 12% less.

  • Unintentionally holding multiple accounts = 1 year’s lost pay

According to the Australian Taxation Office, as at 30 June 2018, about six million Australians held two or more super accounts.

These accounts are created when workers change jobs or industries and don’t close their old account or roll over their existing balance.

These erode members’ balances by $2.6 billion a year in unnecessary fees and insurance.

Cost to member at retirement: $51,000 or 6% less.

Interestingly, the superannuation inquiry did focus on what we believe is most important; the lifetime impact of:

  • a default superannuation and fund selection compared to a recommendation from a financial planner that is ideal for an Australian’s financial circumstances, goals, and possibilities;
  • having a set and forget view on superannuation as opposed to the ideal strategy strategically implemented. Crafted for the individual to make the most of this it, and
  • not considering superannuation as a piece of a far bigger financial puzzle which is ultimately designed to create financial security.

“Many members simply default, and rely on their fund to manage their super for them (whether out of trust, a lack of interest or an inability to compare products themselves).”

As a result, rates of switching between funds and products are modest.

Default arrangements are necessary in a compulsory super system to protect members who do not make their own investment decisions.

The downside is that these policy settings have created an ‘unlucky lottery’ for members by failing to ensure they are placed in the most appropriate funds for them.

When you really look at it, it is no wonder 10% of Australians do not trust their super funds.

Financial security is a journey, not an event. If you have kept your eye off your superannuation, are concerned about its performance, or wonder if you will have enough to live a comfortable retirement, call a Modoras professional today for some impartial advice on 1300 888 803.

After all, with planning… retirement is just the beginning.

The end of financial year is just around the corner, which means now is the time to act if you want to have a successful return. Click here to know how you can make the most of your tax time before or after 30 June.

Tax Planning for Individuals Webinar on Demand

IMPORTANT INFORMATION: This blog has been prepared by Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licences (No. 233209), located at Level 3, 50-56 Sanders St, Upper Mt Gravatt Q 4122. The information and opinions contained in this fact sheet are general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals personal circumstances have been taken into consideration for the preparation of this material. Any individual making a decision to buy, sell or hold any particular financial product should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Pty. Ltd. recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this fact sheet can change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.

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