Tony Yoo, Yahoo Finance, 26th April 2019
One decision could cost you 13 years of salary
Sarah Worboys from Melbourne is no dummy.
She's a management consultant, a chartered accountant and has been a prominent figure in the Australian startup scene, including serving a stint as interim chief executive at Fintech Australia last year.
But even the 34-year-old admits to having had no idea about her superannuation.
"I recently moved my super from an employer endorsed fund – with statements I didn't understand, and I'm a chartered accountant – to another super account I had when bar-tending," she said.
"[That account] unfortunately had for many years been eating my super away in fees, despite excellent performance."
Australians have historically had a "set and forget" mentality, according to Worboys, even though not paying attention could literally cost them hundreds of thousands of dollars.
"Nerding out for a few hours now may pay off in multiple around the world trips later!" she said.
"The difference between a good and a bad fund can have a material impact on the amount of money you have when you retire. You only need to pay even the slightest bit of attention to the Royal Commission to realise that not all funds are acting in the best interest of the customer."
Losing 13 years of salary
Chief executive of super comparison service Roll-It Super, Mark MacLeod, said Australians needed to realise super fund selection was a massive life decision – and something that can't be left to the employer's default fund.
"The wrong choice by your employer today can cost you the equivalent of 13 years salary, or 54 per cent of your retirement savings in the future," he said.
"Ten million of Australian employees don't pick their super fund, leaving this critical decision to their employers... your lack of engagement with your super can be highly detrimental to your long-term financial health."
The amount of fees paid out of a small balance surprised Worboys.
"I will... always be a bit annoyed about their fee erosion of my mini balance from bar-tending days," she said.
"The fees I have paid – even from a fund with a small balance – and mandatory life insurance premiums over time were also quite shocking."
Worboys urged other young people to do a bit of research and make active decisions for their future.
"[Superannuation] feels like something that should be reviewed annually at least, given the amount of money we all pay for fees, insurances and potentially in investment losses if we happen to be with a poor performing fund."
3 tips for super super
MacLeod suggested three things to think about to ensure a big super pay-off later in life:
1. Fill out the ATO superannuation form when you start a new job
Don't ignore this form when you start a new job. Filling it in will make sure super contributions are paid to your existing fund rather than a brand new fund you'll pay more fees for, and possibly even forget about after you leave that job.
2. Check your super fund investment options
MacLeod said while comparing different funds is difficult, it is far easier to switch between different investment options within the same fund.
Most funds have conservative (low risk and low return), moderate (medium risk) and growth (higher risk and higher return) options.
"For most of us, we are not going to be able to touch our super money for many, many years. For this reason, you should explore your growth investment options, not just the MySuper option provided by your employer. Over the long term, these investments can potentially improve your returns, despite the occasional up and down."
3. Take advantage of the tax office (if you can)
"Tax concessions are free money," said MacLeod.
"If you earn under $37,000 and make a personal contribution to your super of $1,000, the government will co-contribute a further $500. That is a 50 per cent return on your $1,000 investment – not too shabby."
He also said that if your partner is earning under $37,000, you can claim a $540 tax offset if a contribution of $3,000 is made to the partner's super fund.
"It is a great way to support the retirement savings of your partner and reduce your personal tax."