It’s your money – make it work hard

it’s your money – here’s how to make sure it’s working hard for you

Set and forget is not a smart option when it comes to super. SuperRatings insights manager Camille Schmidt tells how to make every dollar work as hard as possible.

For many Australians, superannuation comprises an increasingly large share of their wealth and will be one of their biggest assets at retirement – often second only to the family home (for those who are lucky enough to own a property). Therefore, it’s important to take advantage of a range of strategies to get the most out of your super. With the new financial year upon us, now is an important time to check your super settings. Many Australians don’t take full advantage of the services and tools available through fund websites, yet there are significant benefits for members.

Selecting a good fund

Selecting a good super fund, or doing some research to determine whether the fund you are in may be considered a good fund, is important. At SuperRatings, we’ve been researching superannuation funds for almost two decades and have developed and refined our methodology as funds become larger and more complex. We’ve done the hard work by considering more than 300 items – such as fund investment performance, how much they charge, insurance cover and costs involved – and then comparing and rating them. This information is available at SuperRatings Top 10. We also consider the advice services on offer as being crucial in helping members achieve their retirement goals. However, we continue to see only a small number of Australians accessing these services. The majority of funds provide education services to help make sense of it all, and we have seen a rise in webinars covering the basics of super and money tips as lockdowns become the new norm. Finally, we also consider governance of a fund to be important, as it ensures members’ funds are being managed appropriately. When selecting pension (or decumulation) products, there are some different features to those in the

accumulation phase. We have developed a specific method to assess pension products with a greater focus on the flexibility given to members to access their funds – such as the payment options available, ranging from weekly to annual, and the ability to choose a specific day of the week to be paid. Provision of retirement planning services, including estate planning and a range of beneficiary types, is also viewed favourably. In our latest review, we rated more than 440 superannuation products and over 170 pension offerings. Our product ratings are accessible here. The government has also been collecting and sharing information relating to superannuation funds’ performance and fees through its heatmap initiative. The heatmaps highlight MySuper products, those your employer can place you in when you don’t select a fund, which are deemed to be expensive and underperform compared with their peers. Through the Your Future, Your Super reforms announced in the 2020-21 Federal Budget, a new YourSuper comparison tool has been developed to compare MySuper products. The Australian Prudential Regulation Authority (APRA) will also conduct an annual performance test of funds to identify those that aren’t delivering for their members.

Pension return benchmarks – capital stable options 1 Year 3 Years 5 Years 7 Years 10 Years Top quartile 9.6% 5.5% 5.8% 5.8% 6.6% Median 8.5% 5.1% 5.3% 5.2% 5.9% Bottom quartile 7.4% 4.6% 4.7% 4.7% 5.6%

Most funds will have a risk profile calculator on their website to help determine which investment option is most suitable for someone with your age and risk profile.

* As at 30 June 2021. Based on SuperRatings’ SRP50 Capital Stable (20-40) Index containing pension options with growth asset ratios of 20% to 40%. * Returns are net of investment fees, tax and implicit asset-based administration fees. Annualised returns for each period are shown.

The next table is a summary of performance for balanced options based on superannuation products for members who are in the accumulation phase.

Spotlight on investments

The type of investment option your super is invested in has a significant impact on your final balance at retirement. It has been a challenging year for superannuation fund members, with the ups and downs causing many people to worry about their superannuation and the falls in their balance – particularly around February-March 2020 during

the onset of the COVID-19 pandemic. 1

Strategies to boost your super

1. Consolidate

In general, to reach retirement goals, you need some exposure to shares and shouldn’t get caught up in the short-term noise. Be careful if you consider switching to cash during a downturn as you will be locking in the fall in performance. Most funds will have a risk profile calculator on their website to help determine which investment option is most suitable for someone with your age and risk profile. Long-term strategy remains key to realising the long-term outcomes on which super fund members will rely for their retirement. The table below provides a summary of performance for capital stable options based on pension products, to provide an indication of the range in performance outcomes across the market. The top quartile indicates the best performing funds, the bottom quartile is the cut-off for the lower performing funds, and the median represents funds that sit between best and worst performers. The table shows that there is a considerable range in performance across the market, with the top 25 per cent of funds generating a return of 6.6 per cent or more over 10 years, compared to 5.6 per cent or less for the bottom 25 per cent of funds in the market. A 1 per cent difference in performance over the long term can have a significant impact on your final balance due to the benefits of compounding over time. Accumulation return benchmarks – balanced options 1 Year 3 Years 5 Years 7 Years 10 Years Top quartile 19.0% 8.3% 9.3% 8.5% 8.9% Median 17.8% 7.9% 8.7% 8.0% 8.3% Bottom quartile 16.9% 7.3% 8.1% 7.5% 8.0% * As at 30 June 2021. Based on SuperRatings’ SR50 Balanced (60-76) Index containing superannuation options with growth asset ratios of 60% to 76%. * Returns are net of investment fees, tax and implicit asset-based administration fees. Annualised returns for each period are shown. Historically, it has been possible to have multiple super accounts, which means multiple accountkeeping fees. One of the easiest steps to maximise your super is to consolidate your accounts into one provider. But before doing that, it’s important to check your insurance as you may prefer the cover through one particular account.

Multiple accounts won’t be an issue from 1 November 2021. From that date, if an employee doesn’t choose a fund, most employers will need to place super guarantee payments into the employee’s existing account. This reform is known as ‘stapling’ and means members should not end up with multiple accounts when they change jobs.

22. Lost super You can also search for ‘lost’ super accounts, which are accounts that have been transferred to the

Australian Taxation Office as they were considered inactive and had low balances. More information can be found here.

33. Contributions In addition to receiving contributions from your employer, individuals can boost their super by: • Salary sacrificing: This involves arranging with your employer to pay some of your salary/wage into your super fund. The benefit is that these 4 payments are taxed at a maximum rate of 15 per cent, which is often lower than your marginal tax rate. • Personal contributions: Individuals can boost their super by adding their own contributions into their super fund using their take-home pay and then claiming an income tax deduction. These types of contributions are capped at $27,500. You can find more information here. • Government contribution: The government also makes a super co-contribution for low or DISCLAIMER: All content in the Retirement Affordability Index™ is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been middle-income earners of up to $500. This is prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. automatically paid to your super fund if you’re Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, eligible. lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

• Spouse contributions: You may be eligible to make a contribution on behalf of your spouse who is not working or classified as a low-income earner and claim a tax offset of up to $540. There are also mobile apps that allow you to round up the cost of your purchases with the rounded up amount deposited in a nominated account. You could then put the additional savings into your super by making a personal contribution. Every little bit helps! When considering whether to make additional contributions to your superannuation, it’s important to assess your personal situation and the tax implications. We encourage members to contact their superannuation fund or a trusted financial adviser to ease their minds.

4. Advice

If you are unsure about your superannuation offering and would like support, we suggest you contact your fund to see what services are available. If you wish to find a financial adviser, the government provides information on how to select a financial adviser through the MoneySmart website. Take the time to check the settings for your superannuation to be confident your retirement nest egg is on track to provide you with the lifestyle you desire. Camille Schmidt is market insights manager at SuperRatings. She has a PhD in finance from Macquarie University.