Over the next few weeks most working Australians will receive their annual superannuation statements.
Most will choose to make sense of their statement on their own, which is great if you know what you’re looking for. Here are a few tips to help you investigate how your super is performing:
- Fees With long-term savings such as super, the more of your wealth that stays in your savings, the greater your lump sum will grow. So always check the fees in your super fund: there will be an admin fee, an adviser service fee and a management fee (ICR, MER). The overall fee is an annual percentage charged on your balance and you want this to be as low as possible so you keep more in your savings. If you have no advice in your fund, you shouldn’t pay more than 1 per cent. Check the online comparison sites to see the range of fees.
- Insurance Check your statement for insurances. Typically, you could have life insurance and total and permanent disablement (TPD) paid from your super. And if you requested it, you’ll have income protection (Group Salary Continuance). You can compare your premiums with an online quote for a retail product, but more importantly, check that you are adequately covered: is your life insurance enough to cover debts for your family? Is there a policy to provide for your family if you are disabled or unable to work for an extended period of time? Review this annually and get the fund to send you the policy documents if you are unclear.
- Performance Be very careful about putting your super with a new fund just because they claim higher returns. Typically, the best-performing funds do not keep their ranking the next year. It is more important to be in the band of good fund performance: Use financial websites to view the 2013-14 benchmarks for different fund types. Beware of benchmarks tied-in with marketing: use only government sources such as ASIC and organisations with an AFSL.
- Risk When your annual statement comes in, always make sure your investments (e.g. growth, balanced, conservative, cash) reflect your risk profile. Generally, younger people should be in growth, and seniors are usually in conservative and cash. But use an online risk profiling tool, such as SmartMoney’s, to ensure you’re invested in the right options for you.
- Contributions Use the statement to look at your total contributions for the year. This will help to determine whether you reach your retirement savings goals. Generally speaking, the higher your personal contributions, the greater your retirement lump sum. When considering where to invest a windfall (tax refund, work bonus) think about your life stage and priorities: when you are young and getting established, a windfall should generally go into the mortgage or the savings for your deposit; when you’re closer to retirement, it might be better in your super.
I always advise people to employ expert advice if they do not understand their investment options. But many questions can be dealt with by knowing which questions to ask, and doing your homework.
Mark Bouris is executive chairman of wealth management company Yellow Brick Road. www.ybr.com.au