Stop making a super mistake today

It’s approaching the time of year when you’ll receive your annual superannuation statement. Whether it arrives via email or snail mail, many Australians rarely give it a second glance.

Why this could be a super mistake

It is important to know that your Superannuation statement represents a glimpse into your future finances. Superannuation is both a longer-term investment strategy and a tax-effective way to invest. Small tweaks to investment returns or fees now, particularly if you’ve still got decades ahead of you to contribute and invest, can massively change your retirement lifestyle.

Why not make your 2022-23 super statement the one that gets you thinking?

What are the underlying investments in the fund? Do they align with your risk profile? Do you need to review any insurance held through your super?? Is it costing you too much? How financially secure does it make you feel? Is it on track to help you achieve your retirement goals?

Here’s a rundown of the key things to look out for when you receive your statement:

1. Opening (1 July) and closing (30 June) balances:

Did you end up with more than you started the year with? A positive result is a great start. This is the return you achieved (positive or negative) after all fees, taxes and insurance premiums are accounted for – your real return.

In some years, if you end up with less than what you started, it is not necessarily a poor reflection on your fund. Investment markets go up and down, and you should consider this despite your disappointment. Check out how the market and other funds have performed before making your judgement.

This may prompt you to consider: Are you invested in the right investment option to achieve the returns you would like without taking an excessive risk?

2. Estimated retirement income

Some funds calculate the estimated projected monthly or annual retirement income you could reasonably expect to earn from your superannuation account based on various assumptions made by the fund. These assumptions include assumed future contributions, investment returns in the default investment option (that may differ from the option/s you are invested in) and various fee and premium deductions. Keep in mind these calculations will only include estimated income from that super account and no other sources.

This may prompt you to think about: What does this projected retirement income look like? Will it be enough?

3. Fees and charges

There will be a section that shows the total of all the fees and charges deducted from your account. However, these fees do not usually include or specify investment fees. The fees and charges are administration fees, applicable one-off fees (some funds charge for investment switches between options) and insurance premiums.

This may prompt you to think about: How do you feel about the fees and charges you’re paying? How do they compare with other funds?

4. Insurance cover

Depending on your fund, you may have some default death and permanent disability insurance cover. This is particularly true if you’re with an industry fund. You may also have some temporary disability or income protection cover within your super. Check out how much cover you have. Compare it to what is available outside super to check if the policies are right for you.

This may prompt you to think about: Is the cover you have adequate to look after you and/or your family members?

5. Nominated beneficiaries and Binding Death Benefit Nomination (BDBN)

Many people do not realise that their Will does not necessarily govern who will receive their super benefit if they die. Generally, superannuation does not form part of your estate unless the trustee of the superannuation fund pays your member ‘death benefits’ (the balance of your superannuation account) directly to your estate. To receive super benefits, superannuation law requires the recipient to meet the definition of a dependant.

Check whether you have nominated who should receive your super and any insurance if you die. If those you have nominated are not dependants under superannuation law, the fund trustee could pay your benefit to someone else who does satisfy the definition. There is legal recognition for de facto and ‘financially dependent’ relationships.

Your statement should disclose if the trustee holds a current BDBN for you. You need to complete this and must renew it every three years for your death benefit to be directed to specific beneficiaries. If you have divorced, have children with more than one person, or have entered a new relationship, you may have multiple dependants, so a current BDBN is extra important.

This may prompt you to think about: What are my current relationships? Who are my dependents? Do I need to do a BDBN to get this right? Have you nominated who should receive your benefit? If not, do so,

Superannuation fund statements contain a lot of information and small print, but the areas highlighted above can provide a gauge as to how well-matched your chosen fund and your investment strategy are to meet your retirement goals and needs.

So, what do I do?

Hopefully, your super fund is ticking all the boxes, and your review leaves you feeling confident about where your fund is taking you.

The answer is not necessarily to switch funds. You can often tweak your super to suit you by choosing a different investment option within your fund and/or increasing your salary sacrifice or voluntary contributions within the maximums allowed under the superannuation rules.

There are many factors to consider before deciding whether switching funds is the best course of action for you. This can include factors such as the timeframe you’re looking at to reach retirement age or a condition of release, whether the fees and charges are reasonable, the returns when compared with the returns of funds with similar risk profiles, and the cost benefits of any insurances held within the super. When considering fees, remember that the fees reported in your statement do not always include investment fees, so overall fee comparison with other funds requires some additional research to make a proper comparison.

In the case of dealing with beneficiaries, if you have more complex family and dependant relationships, you may want to consult a solicitor about how to ensure your benefit goes to the right people and how it would work alongside your Will.

Finally, if you conclude the romance with your super fund has faded and it’s time to waltz with another fund, there are several comparison websites, including Canstar, SuperRatings and Selecting Super, that can help you. If you’re not confident about making financial decisions yourself or just want to test your ideas out with someone more qualified, the best thing your super statement might do is prompt an appointment with a professional financial planner.  Whatever the case, discussing your situation with a qualified financial planner before making your final decision will ensure that you make the decision that best suits you.

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