Widespread apathy about super has allowed super funds to get away with charging extortionate fees for decades.
According to the Grattan Institute, Aussie super funds collectively rake in $20 billion a year in fees, which is a hefty three times the average rate for comparable OECD countries.
These fees, many of which go unnoticed by the people paying them, line the pockets of fat cat super funds by eating away at the retirement balances of everyday Australians.
Not a great situation, you’ll probably agree.
So don’t let your super fund lead you down the garden path. Follow this five-step plan to take control of your super; it’s much easier than you think.
1. Consolidate your accounts
If you don’t choose a super fund then your employer will pick one for you, which is why so many people end up with multiple accounts and multiple sets of fees eating away at their money.
Bringing these together will save on fees and make it much easier to manage and keep track of your money.
So jump on the ATO’s SuperSeeker website to see a list of all the accounts held in your name, including any ‘lost’ accounts you might have forgotten about.
If you already have a fund that you’re happy with you can kick off the consolidation process right there and then on the website.
2. Understand the fees you pay
The higher the fees you pay in super, the less money you’ll have in your account when you need it most: at retirement.
And the younger you are, the more you have to lose.
By the time someone who’s 30 today hangs up their boots, the Grattan Institute shows that their super balance will have been reduced by over $250,000 thanks to fees, in today’s dollars.
So don’t delay. Brew up a stiff pot of coffee, dust off your latest super statement and read it through to get an understanding of what you’re paying now.
Then, do your research.
Independent and unbiased financial comparison websites like Canstar are a great resource to compare the fees and features offered by various funds, and find one that’s right for you.
3. Choose your investment option
It’s likely your money was bundled into a generic balanced portfolio when your account was set up, and it’s stayed that way.
But how you invest your super is one of the most important decisions you can make on your account.
Most super funds offer a range of different investment options to cater for a variety of strategies. Your strategy will depend on your personal situation, what you want to achieve, your investment timeframe and how comfortable you are with risk.
Typically, higher risk or more complex investments require more active management and as a result charge higher fees, but these can be offset by higher capital growth over time.
4. Review your insurance
Super funds usually provide new members with some combination of life, disablement and income protection insurance when they join.
The level and cost of this cover can vary significantly from fund to fund and the default cover may not be suitable for your personal situation, so take the time to review it carefully in relation to your needs.
5. What if I don’t make a choice?
Until recently, not making a choice about your super was a dangerous game, as super funds loved to gouge unknowing ‘default’ customers with outrageously high fees.
Fortunately, the government has put a stop to this for the most part with the MySuper regime. MySuper accounts are simple, low cost options that are not allowed to charge customers excessive fees or commissions. Since 1 January 2014, if you haven’t made a choice about where your employer should pay your super, they have been required to pay your contributions into a fund that offers MySuper.
But this doesn’t mean you can kick back and relax.
If your employer was making contributions before 1 January 2014 to a default fund, your existing balance will still be being charged the old fees, and it won’t be transferred into a MySuper account until 2017.
If this the prospect of contributing to a super exec’s bonus isn’t enough to spur you into action to lower your fees, remember that super is real money invested in real assets, and it’s yours. So start giving a shit.
Image: www.bankofengland.co.uk, Flickr