With superannuation fund members across Australia receiving their FY2018 annual member statement, now is the perfect time to reflect, review your fund’s performance and make decisions about what you can do to improve your future super outcomes.
Your super account investment balance and working out how much you’ll need for retirement
Understandably, the first thing most people look at when they receive their annual super statement is how much money they have in their account.
This amount will be shown on your statement. Ideally, your statement will not only show your balance at the end of 2017–18 but also your balance at the end of previous financial years. That way, you can see, at-a-glance, the changes in your balance over time.
To help you forecast what your balance total could be upon retirement, your super fund should provide an online retirement planner calculator. If they don’t, ASIC’s MONEYSMART website provides such a calculator.
Once you have determined your forecast balance using a calculator, the next step is to compare it to the Association of Superannuation Funds of Australia (ASFA) Retirement Standard.
The ASFA Retirement Standard benchmarks, on a quarterly basis, the annual budget needed by Australians to fund either a “comfortable” or “modest” standard of living in the post-work years.
The latest standard, issued in March 2018, states that, in retirement, a single person aged 65 will need $27,368 per annum to lead a “modest” lifestyle and $42,764 to lead a “comfortable” lifestyle. Couples will need $39,353 and $60,264 respectively. (These figures assume the retiree/s own their home outright and are relatively healthy).
Should you be topping up your super?
If your analysis shows that you could fall short of your desired retirement balance target, you can consider making additional voluntary contributions to your super.
Your super balance includes both compulsory contributions paid by your employer (currently 9.5 per cent of your salary pursuant to the Superannuation Guarantee) and any additional voluntary contributions you have chosen to make.
If your Super Guarantee contributions are less than $25,000 per financial year, then you can choose to make additional voluntary contributions to super up to the $25,000 limit. These additional contributions (known as concessional contributions) are taxed at a concession tax rate of 15 per cent compared to your marginal tax rate, which in most cases will be higher.
If you decide to pay voluntary concessional contributions it is important to first check with your super fund to ensure these additional contributions do not lead to you exceeding the $25,000 contribution limit. Contributions in excess of this limit can be taxed at a higher rate.
As well as making voluntary concessional contributions up to the $25,000 cap, employees can also make what are called non-concessional (after-tax) contributions. While non-concessional contributions are taxed differently to concessional contributions, these types of contributions also carry attractive taxation advantages. Your super fund can provide further information.
The current after-tax non-concessional contribution cap is $100,000 for each financial year. However, people under the age of 65 on 1 July in a financial year can contribute in excess of the $100,000 cap up to an amount of $300,000 in a single financial year pursuant to the “bring-forward rule”. This can be a valuable and significant way to boost your savings for retirement.
As the Australian Securities and Investment Commission (ASIC) MONEYSMART website says: “If you can spare the money, you can really boost your super savings by making after-tax contributions. You will usually save more by investing through super than by investing in the same assets outside super.”
Superannuation Investment Options
One other significant aspect to consider when reviewing your current and future balance is the investment option in which your balance is invested. Your investment option will be shown on your member statement.
Most members are invested in their funds’ ‘default’ investment option. Speak with your fund to determine whether it is time to make a change. Often, younger members choose “aggressive” or “assertive” options (e.g. more highly invested in shares and property) while those nearing or in retirement choose a “balanced” or “conservative” approach (e.g. more highly invested in fixed interest and cash).
Insurance Types & Levels
Just as there are benefits in reviewing your investment options, it is also worthwhile reviewing each year the types and levels of insurance. Your circumstances will change and the appropriate level of death, disability (TPD) and/or income protection insurance for you and your family will therefore also change too.
Also, as part of looking after your dependents, it is well worth checking to ensure you have nominated a beneficiary for your super in the event that you die, and that you have indicated whether this nomination is “binding” or “non-binding”.
Superannuation Fees & Charges
There has rightfully been a spotlight in the media recently on the fees and charges some super funds charge.
Most super funds will have competitive and fair fees and charges and will readily be able to explain the basis for the levels at which these are set.
To help you evaluate the reasonableness of the fees and charges described in your annual member statement, the ASIC MONEYSMART website provides an excellent introduction to this.
Check your contact details and contributions
Each time you receive your member statement you should always check your contact details to ensure they are up-to-date, complete and correct.
At the same time, make sure that your employer has contributed the full amount required under the Superannuation Guarantee. Sadly, some employers, either through deliberate omission or oversight, fail in this regard. If you are not sure how to review your Superannuation Guarantee contributions (and other contributions such as your salary sacrifice contributions), your super fund will be able to assist.
Your Superannuation Fund’s Performance
With superannuation being the bedrock for retirement for almost all Australians, people are entitled to know, and should want to know, how well their fund has performed compared to other super funds.
One independent superannuation ratings agency is SuperRatings, which reports that in 2017–18, the median MySuper investment option returned 8.7 per cent. By comparison, legalsuper returned an impressive 9.4 per cent during this period.
As part of your review of your annual member statement it is well worth checking to see if the statement provides investment performance information for your fund, including how your fund performed compared to other funds.
If your fund does not provide this information, or if they have not met or exceeded the median performance level, ask them why. If you are not satisfied with their response, it may very well be time to think about changing super funds. Even small differences in return can make a material difference over time.