Noel Whittaker writes exclusive weekly blog updates for the Ban Tacs Group, with IN8 Business Advisory, a member of that group. Here, he talks about APRA’s recent announcement on under-performing super funds and a few inputs on how you can boost your super.
Last month, the Australian Prudential Regulation Authority (APRA) announced thirteen superannuation funds whose MySuper offerings had failed the new annual performance assessment introduced in the Your Super Reforms. These funds will be required to write to their members by 27 September 2021, advising of their poor performance.
The names of the funds were well publicised, which led to a flood of emails asking for advice about what to do if you found yourself in one of them. It’s certainly a wake-up call – you should thoroughly examine your superannuation, and improve it in any way you can, but it is probably worth waiting to see if you receive a letter from the fund before taking drastic action.
The reason is that some of the funds named as under-performing are offered by some of Australia’s major fund managers and many of their other products may be performing quite well. So don’t panic just because your fund manager is on the list – wait for the letter and then decide.
MySuper funds are the default option in which members who have not yet chosen what to do with their super find themselves. So, if you are in a MySuper fund, you have not yet made any decision. A major finding of the Cooper inquiry into superannuation was that 80% of fund members are “disengaged”. It’s time to get engaged.
If you don’t, you will forfeit the earnings you could achieve simply by taking a little time to seek out a better performing fund or to choose asset classes that suit your risk tolerance and timeframe. Yes, if you are in a poor performing fund, it’s likely that you will want to move it to a fund with a better record. But there are a few circumstances in which you must check carefully before jumping ship.
Keep in mind that if you have insurance in your existing fund, it will be cancelled if you transfer to a new fund. Therefore, before you change funds, make sure that the new fund can insure you on acceptable terms. If it’s not possible to find insurance on acceptable terms, you may be better off to stay with your existing fund.
The APRA announcement is a wake-up call to get engaged with your superannuation. The major factor that determines how much money you will have in superannuation when you retire, and how long your money will last after you retire, is the rate of return your super fund can achieve. If you’re under 45 you should be investing in high growth funds, and if you’re over 45 a mix of high growth and balanced funds will usually suit you.
For a good learning experience, go to Noel Whitakker’s website and play with the Superannuation Contributions Calculator, which lets you model various scenarios based on various rates of return. Over 30 years, a change of rate could make a huge difference –over $1 million.
Apart from working out ways to increase your rate of return, consider strategies to improve your financial situation in the most tax-effective way. If you are over 50 and have a mortgage on your home, you should aim to retire with sufficient funds to pay off your mortgage. One of the best ways to do this is to maximise the tax-deductible contributions you can make to your superannuation. Such contributions lose just 15% tax (30% for high-income earners) which is paid within the fund, whereas after-tax funds (the ones you use to pay down your mortgage) lose tax at your full marginal rate. Making pre-tax contributions is usually the best way to boost your superannuation.
Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email: noel@noelwhittaker.com.au