Throughout my working life I’ve made all 4 common superannuation errors. These poor financial decisions meant my super balance was actually going backwards when I had time off work after having a baby, and then doing part-time work.
Since I’ve been making informed decisions about my superannuation my balance is growing, despite the fact that I’m currently working sporadically as a casual employee.
- Australians have $2.7 trillion dollars invested in superannuation funds
- The current superannuation system is harming millions of members
- The Productivity Commission blamed poorly performing funds, multiple superannuation accounts and excessive fees
- Add into that a lack of financial literacy and it results in many people losing their money
- The statistics are worse for those between 18 to 28 years
- Almost half the Australians in that age group don’t know which fund is holding their superannuation money
1. Being Unaware Of Your Superannuation Fund
If you earn $800 per week and your employer took 9.5% from your pre-tax wages at $76 each week and that $76 per week came to $3,952 for the year plus interest accrued, wouldn’t you want to know where that money was going?
Yet, 40% of Australians know very little about their superannuation.
The first step to actively tracking your super is to find out about your super fund.
This is essential so that you can check your employer is making regular deposits of your money. Too many people get ripped off by their employer not depositing their superannuation money into a fund.
Find out the name of your super fund and your membership number. Then go to the super fund website and create a login. Monitor your superannuation fund for deposits, fees and insurance payments.
Now you know where to go to see your hard earned money, and how your retirement nest egg is performing.
*If you think your employer is not paying your superannuation contributions you will need to contact the Australian Taxation Office. For further details read ‘Report Unpaid Super Contributions From My Employer’.
2. Having Multiple Superannuation Funds
More than 30 per cent of people aged 18–25 have two or more super accounts. For those aged 26 to 30, nearly 20 per cent have three or more accounts. This is bad news for anyone’s retirement savings.
Every super fund charges management fees. This means that if you have three super accounts you are paying fees on each of those three accounts.
Plus each super fund will also be charging you for default insurance, which results in paying for multiple insurance policies. And you may only be able to make a claim from one policy even though you are paying for multiple policies.
Australians currently pay $1.9 billion per year just in duplicate insurance policies.
Add up all the extra fees and default insurance payments and suddenly you’ll notice that your hard earned money is quickly going nowhere.
There is an easy way to fix this problem.
- Create a login to the government’s myGov website
- Once you are in, link myGov to the ATO
- Then select ‘super’
- View all your super accounts including lost or forgotten super
- Choose one super fund for all super payments
- Roll all your other funds into your chosen fund
Note: there may be exit fees from your super fund. You will also need to find out if your chosen super fund has insurance that you are eligible to claim.
3. Paying For Default Insurance You’re Not Eligible To Claim
It is possible that you could be paying for insurance that you are not eligible to claim.
These areas may affect your policy:
- The level of cover may be limited and not suited to your circumstances
- Some occupations may exclude you from being able to claim insurance
- Not working full time may affect your insurance eligibility
- The cost of insurance comes out of your super balance, reducing the money available for retirement
- Some funds default members as smokers or blue-collar workers which increases the amount of money you pay for insurance
- Your insurance cover may stop if you change super funds; you have an extended absence from work; or, your account balance drops under a certain level
Superannuation funds with default insurance policies that you are not able to claim are called ‘zombie policies’.
You may need to contact your superannuation fund’s insurance department to check that your details are correct and up to date.
Find out what type of insurance you have, how much cover you have and how much you are paying for insurance. Check your eligibility for the insurance you are paying for.
A criticism of default insurance policies for those under 25 years is that young people are unlikely to need death insurance, total and permanent disability insurance or income protection insurance.
The government has proposed changes for those under the age of 25. They would have to opt in to insurance cover instead of having it set up by default.
4. Paying High Fees On Your Superannuation
Australians unwittingly hand over a collective $31 billion dollars every year. How? We have some of the highest superannuation management fees in the world.
These fees come out of your superannuation savings and reduce the balance. In fact, super fees may reduce your balance over the long term by as much as one third.
According to Scott Pape, the Barefoot Investor, your superannuation fund should be charging you less than 0.85 percent in fees per year.
In real life terms, a 0.85% cost means that for every $100 you have invested you’ll pay 85 cents in fees.
Pape says if you are being charged more than 0.85% then you should seriously consider rolling over your money into a cheaper super fund.
To find out how much you are paying in fees you’ll need to do a web search for your superannuation fund’s PDS (product disclosure statement). Type your super fund’s name, followed by PDS.
Open up the PDS and look for fees and charges.
This is where it can get confusing as there are investment costs and indirect costs. You’ll will need to add up the percentages of all the costs for your investment fund. Does it come to 0.85% or less?
How does it compare to the Barefoot Investor’s recommended superannuation fund which has fees of 0.07 percent?
As an annual comparison: $250,000 x 0.85% = $2,125 in fees.
Yet, $250,000 x 0.07% = $175 in fees.
That’s a massive difference of $1,950 in fees for that year.
If you’d like to look further into Pape’s recommended super fund, research the Hostplus Indexed Balanced Fund.
For more information on index funds read Aussie Shares For Beginners.
- Find out which fund your superannuation is going into
- Get your superannuation fund membership number
- Log into your super’s fund website to track your savings
- Download your super fund’s PDS
- Figure out how much you are paying in fees
- If your super fees are higher than 0.85% consider changing funds
- Make sure your employer is depositing your superannuation money
- Check myGov for multiple or lost super funds you may have
- Roll over multiple funds into one fund
- Check you are paying for insurance that you are actually eligible to claim
It’s also a good idea to track your superannuation as part of knowing your net worth. This is will help you to see if you are making sound financial decisions or not.
Disclaimer: I am not a personal finance advisor. Do your own research and contact a professional as needed. Tread your own path.
Please share any superannuation errors you’ve made and how you overcame them.