Your super is getting stuffed up. And I don’t mean by volatile share markets or perhaps your own pandemic-panic raid.
Successive governments – most with good intentions – have messed with it… and the recent Budget brought news of more change.
But the trouble with change is that, if not done right, it can have unintended consequences.
Here are the five new threats to your comfortable retirement…and your fast ‘future fixes’.
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Threat 1: Contributions frozen at 9.5 percent
They are supposed to be slowly on their way up from 9.5 percent to 12 percent on July 1. But yup, Covid-19 may put a stop to that. Which means you won’t get paid.
While super architect Paul Keating has long argued that 12 percent contributions are necessary to achieve a cushy retirement, there is a growing chorus of Coalition MPs keen to halt the hike.
Former Labor Prime Minister Kevin Rudd says freezing contributions at 9.5 percent would see a 30-year-old worker earning $40,000 with $100,000 less in retirement.
Mr Rudd, wrote in The Sydney Morning Herald: “It will entrench stark inequalities between rich and poor.”
Speaking of which…
Threat 2: Members stapled to their first fund
It’s not as painful as it sounds and was a decent proposal contained in the recent Budget. The problem with it, though, is that your first super fund is often one for hospitality or retail workers… and might not be appropriate for your adult, skilled self.
Particularly when it comes to insurance.
Deanne Stewart, the chief executive officer of second-biggest Australian super fund Aware Super (a rebranded First State Super and others) says: “A [second] employer-offer fund could be more suitable for the life stage – say, offering really tailored insurance for police officers. Many funds actually have exclusions for police officers and emergency workers.”
What’s more, Stewart points out that the fund that is appropriate for the long investment horizon of your teenage life is not the right fund for when asset allocation (and insurance) is more important, post-50.
And note well: If you have multiple funds from previous jobs, you are paying multiple fees and insurance premiums – so just letting your savings drain away.
Aware is proposing using myGov and the ATO’s single-touch payroll system to give employees a choice of industry- and age-appropriate options, and to actively choose the best one each time they move jobs.
And on a related point…
Threat 3: League tables that don’t deduct all fees
Around two-thirds of all Aussies opt for their new employer’s fund.
As the superannuation Productivity Commission report stated: “While default members represent about half of the accounts (and a quarter of the assets) in the system, nearer to two-thirds of people default on starting a new job.”
As it stands the system doesn’t yet ‘staple’ or roll in your previous fund when you start a new job.
That means a high risk of finding yourself in at least one dud fund. It also means a high risk of being in one unduly eroded by fees.
People need to be told the bombs. But the government’s new proposal is a performance comparison net only of investment fees, leaving out often-hefty administration and insurance fees.
Shadow assistant treasurer Stephen Jones has called it a “massive design fault” to “only measure half the fees”.
And it is a big flaw to exclude some fees when the Productivity Commission found 25 percent of funds have too-high ones attached (and 25 percent of funds underperform to the extent of wiping $100,000 off members’ retirement monies).
As proposed, Labor will reject the ATO-administered YourSuper comparison tool.
Instead, the idea above to use myGov and the single-touch payroll to let members actively choose their fund, could display the options colour coded by performance (net of all fees), as per the APRA heat map released last year. Red for danger!
And back on the insurance topic…
Threat 4: No automatic insurance for many members
Automatic insurance is now banned for those under 25 and/or low-balance funds (under $6000).
This move is to preserve as much of member contributions as possible, without them being eroded by premiums.
The trouble is where that insurance might be necessary. People in high-risk occupations should probably opt-in – an easy process – if they don’t have insurance elsewhere.
It’s also worth noting that Aware Super secured an exception for its emergency workers and police officers, so those under 25 are still automatically insured.
“Insurance even for those under 25 because of the risk in their occupations, is a really important part of the super offerings,” says Aware’s Ms Stewart.
Threat 5: You losing super
This is extremely likely. It can happen if you’ve merely been uncontactable and haven’t made a super contribution for 12 months or if your account is inactive and you haven’t made a contribution for five years.
In fact, there are now 2,816,968 lost or unclaimed accounts hiding an average of $6,554.
New South Wales has by far the most lost or unclaimed accounts (more than 889,000 worth slightly above the average at $6,852 each), followed by Queensland (644,000 worth $4,356).
However, some good news for Victorians! There is an average highest amount of $7693 waiting for 622,000 of you.
To find out if some is yours, go to your myGov account, access ATO online and then click on the superannuation section.
There is also a lost super search line: 13 28 65 (you’ll you’re your tax file number).
Take steps to fix your future now.
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