Superannuation can be confusing. You can end up with more than one. It usually holds valuable insurance policies. There are choices about which fund to chose and which risk profile to set. Often, unless retirement is quickly approaching, we don’t put much thought, time or effort into considering these variables. But trust us, a bit of upfront work and clarification can go a long way to having an impact on your future.
As superannuation is the cornerstone of our retirement it is in our best interest to pay attention to its whereabouts and activity to maximise our future wealth. By monitoring and reviewing where our super dollars are, we are taking a proactive approach about our future and ensuring we have the best chance of reaching our long-term retirement goals.
Whilst we work with a broad range of clients at Invest Blue, we have hundreds of clients come and see us when they are approaching retirement and needing to put together a plan for their future once they finish work. Having enough super to retire on is a key part of this plan for many, and Australians often find themselves in a position of not having enough super.
Starting early is your best chance at maximising the returns from your super, in terms of working out a strategy for how to achieve your financial goals for your retirement. Some employers match employee contributions to increase super amounts, and there is a set amount that employees can salary sacrifice before tax.
By paying attention, learning about our super and implementing super strategies with a Financial Adviser, we are able to make sure we get the most out of our super. Simple changes such as consolidating multiple super accounts and ensuring your super dollars are invested in line with your risk profile can make dramatic changes to your future wealth.
Here we learn from Adviser Travis Stanley about how to do more with your super.
1. Why consolidating super is so important
By consolidating our super accounts, we can gain many benefits and move towards our long-term goals. One key benefit of super consolidation is the preservation of wealth. This preservation can be looked at in three main areas; fees, premiums and risk, all of which can eat into the balance of your super. We will discuss risk in a minute.
Fees are a part of nearly all super accounts and are simply applied to the member as per the rules of the fund. Although hard to avoid, not all super funds are made equally and can have fees or charges in many different forms.
Considering fees and value for those fees is important when comparing different super funds and a factor to be aware of.
“These fees are deducted from the balance on a regular basis for the purpose of managing and running the operations of the fund. They can also take many forms and can include administration fees, contribution fees, investment fees and asset-based fees, just to name a few. Therefore, if someone has their super dollars across say four funds, they are exposing their money to four sets of fees.” says Travis.
This multiplication effect will compound over the long term and could be the difference in meeting or falling short of retirement goals.
Premiums, much like fees, are deducted from the balance of the fund and can erode a super balance quite significantly over time, especially if across multiple accounts.
Yet unlike fees, these premiums are paid for the benefits of important insurances such as Life, Total and Permanent Disability and Income Protection. Therefore, careful consideration must be made before removing them all just to save on premiums and preserve the balance.
Travis reports that “Although consideration must be made, one may find that an individual doesn’t need certain insurances or are way over insured for their needs, hence paying too much in premiums.”
When this is the case, the right move to ensure the preservation of your balance may be to cancel or reduce certain levels of cover and hence premiums paid. While seemingly simple, this consideration is complex and has many moving parts. By speaking with and adviser you can gain insight into the different types of cover, what is right for your needs and find a cover that aligns with your goals so the right choices can be made. You can read more about how to choose the right super fund here.
2. What are risk profiles and how do they affect our super?
Coupled with preserving our super balances, we want to make sure our super is working as hard as possible for us and in turn growing at our desired rates over time. This is where the consideration of a risk profile comes into play.
What is a risk profile you may ask? A risk profile determines how you personally feel about risk based upon your values and willingness to take risks. Someone with a low-risk profile is a more conservative investor where a high-risk profile can go for a more aggressive investment plan. The stage you are at in your life can also impact your risk profile, as it is likely to change over time.
“All super funds are invested in a particular risk profile. This allows the money to be invested in a mix of growth and defensive assets, yet these risk profiles are often prescribed for the member based on things such as when they were born. They can fail to take into consideration a member’s real tolerance and preference to risk. Another tricky element in comparing super funds to each other is that there are no conventions around naming or profiling, so one fund’s “balanced” portfolio may look more like another fund’s “growth” when you compare the levels of risk they are taking.” explains Travis.
This is important as different profiles offer different returns and will ultimately affect your ability to grow your super each year. Over time, being invested in the wrong risk profile can either expose you to more risk than you are comfortable with or restrict you in the returns you may be able to generate.
We cover more about risk in our Investment Philosophy.
If you are looking to invest however unsure of what your plan is, speak with an Adviser today about what strategy is best for you.
3. Is it worth seeing a Financial Adviser about super?
There are many things you need to take into consideration when choosing the right super fund for you. Speaking with an adviser can help you make better choices about where your super is invested and how to make it grow. If you need to consolidate your super funds you will need to evaluate which accounts to close or if you need an entirely new fund altogether dependant on which is going to provide the most benefit.
For example, it’s likely you have insurance policies built into your super. When consolidating or choosing a new super fund you will need to take this into consideration and compare each level of cover attached to the account and the premiums to match it, if you’ve had that fund since your early 20 it’s may be that premiums will be cheaper than what you would pay if you opened a super account in your 50’s. Your adviser will compare the fees and the premiums with the level of insurance provided by the fund. This will ensure you have the best level of protection possible if you were injured or unable to work.
An adviser will also help you determine your risk profile and what type of super fund matches it so your super is aligned with your values and investment philosophy. If multiple super accounts are held, an adviser can also help in the consolidation decision process as many super funds offer limited risk profiles. Finding a fund that allows your assets to be invested in line with your risk profile help you to choose the appropriate fund. They will also look at the value of your account now and see what fund is likely to have the highest benefit for you, in turn being specific to your individual needs and helping you to be on target to achieve your goals.
As there are many factors to consider when it comes to choosing the right super fund, it is best to seek the advice of a financial adviser who can give you a holistic perspective of which super fund offers the most benefit for you, so you can live your best possible retirement. It’s particularly worth seeing a financial adviser sooner rather than later if you’re worried about your super or concerned it’s too late to grow your super.
4. What role does the Government play in superannuation?
The Australian Government understands the benefits of a superannuation scheme and is constantly evolving to assist Australians in getting the most out of their super.
One key indicator of the Government’s view of super’s importance is the incremental increase in compulsory super guarantee rates, which have been announced to be raised from 9.5% to 12% by the year 2025.
Further measures to assist Australians include the ATO lost Super facility. Which can be found on the ATO’s website; https://www.ato.gov.au/forms/searching-for-lost-super/. This aims to protect and reunite people with their super and requires super providers to pay inactive-low balances to the ATO, where individuals can more easily find lost funds.
The Government also allows for pre-tax concessional contributions to be made into your super account that is currently capped at $25,000 per annum including employer contributions.
Taking a proactive approach and considering the likes of consolidation or how your Super dollars are invested is important for your future. We see many clients who are looking at ways to maximise their retirement. Let’s take this basic example:
The following is an example of a financial problem we often encounter.
“Sam came in to check in on his financial health. At age 35, he was a long way from retirement but knew that the next 20 or so years would be busy and full and he wanted to make sure he was saving enough to afford a comfortable retirement. We see this often, coupled with a lot of competing demands for our dollars throughout the middle years of life – think home loan debt, educating children, travel, cars, renovations, …. The list goes on! It is very normal for someone to be worried about their future, even if their numbers stack up nicely! We did a lot of work with Sam, but one of the things that needed attention was his superannuation. Sam held three separate accounts, acquired over previous roles. Each of these accounts came with their own set of fees, premiums, insurances and investment strategies. Consolidation would save Sam money, simplify his portfolio, and help to clarify where he stood financially moving forward.
In this particular example, we were able to save Sam more than $1,000 per year in fees and premiums, align the investment objectives to his stage of life, goals and risk preferences consistently, and also ensured his wealth protection strategy (insurance profile) was suitable for his current needs.
Having your super dollars invested appropriately allows you to get the most out of your super and ultimately give you the best chance to achieve your goals.
Financial Adviser – Brisbane
Taking action to review your super could make all the difference in the outcome of your long-term goals. Read some of our Client Stories here and reach out to us to start to plan your life in retirement.
What you need to know
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.