About this time of the year your annual superannuation statement should drop into your inbox. Or perhaps it comes by mail. If you bother to open it and check the detail you’ll be in the smart segment of Australians who actually care about the performance of their super. Sadly, many don’t, according to Joshua Lowen, Insights Manager at SuperRatings. He reports that only 55% of members of funds open their statements, with 45% choosing to ignore them.
Why is it important to fully understand your super statement?
Joshua believes that this annual summary presents an opportunity for members to check their super, to check that the settings are still right, and to make sure that any contributions have been paid into the fund on their behalf. He says that most people tend to forget about their super and the annual statement is a great prompt to ensure that your savings for your future benefit are working as well as you want them to.
Of course there is an argument that the older you get and the more you depend upon your super drawdowns as a primary source of income, the more you are likely to care.
This week we scrutinise a typical super statement and discuss the six main points you should be checking – those that add up to your fund’s overall performance.
Firstly of course, simply comparing year-on-year percentage returns is not the full story. Again, says Joshua, that there can be annual volatility, and checking out your fund’s longer term performance (over periods of 5-10 years) is useful.
So here are the six different checkpoints you should review in order to assess your overall super account health. And remember, just because we are reviewing a 12-month performance, this is not the whole story.
Main elements in your super account statement
The following is a brief summary of the typical aspects you will see:
|Opening balance July 1 2022|
|Salary sacrifice and optional employer contributions||+|
|Withdrawals and/or rollovers||–|
|Closing balance 30 June 2022||Total of above|
The top-level performance of your super is the percentage increase, due to investment returns, year on year.. Over time investment performance really adds up so it is always worth comparing your funds overall performance against that of competitive funds. Here’s a link so you can see SuperRatings comparison of last year’s Top 10 Balanced fund returns.
It may be that you no longer work at all, so have no contributions to check. But for the many people who do part time or casual work, there should be contributions made on your behalf. Checking these have been received is important. It may be that your employer has not paid contributions at all, or has put them in another default fund, which means you could have two funds, with two sets of fees and perhaps two separate insurance deductions. It is important to uncover this and consolidate if this is costing you money.
3. Are your fees competitive?
Your statement also shows the fees that your fund has charged you for the management of your super savings over the past 12 months. Again, fees can vary a lot from fund to fund, so it is worthwhile checking that the amount you are being charged is at least competitive. The fee is sometimes a fixed dollar amount or else a percentage of your balance.
4. What is your investment setting?
Just because you are in a certain fund, this does not mean that the performance of your savings will be the same as someone else in that same fund. The percentage return on your savings will depend upon the investment setting you have chosen. Many people will choose a balanced option. This is often the default setting for many funds with a mix of assets including Australian and international shares, cash, fixed interest, property and infrastructure. Many people nearing or at retirement often choose very conservative investment options such as cash or fixed interest. These are often chosen because the returns tend to be quite stable. However, this is not necessarily the best setting, even for retirees, as the returns over a 20-30 year lifespan may be modest compared with those of a growth or balanced setting. The choice of settings is far from simple and is usually best tackled once you have a thorough understanding of your risk profile.
5. Were you taxed?
If your account is still in accumulation mode you will be taxed 15% on contributions and investment earnings.
If, on the other hand, you have reached Preservation Age and have converted to an income stream such as an account based pension, you will not be taxed on earnings. It is worth thinking about this if you are still paying tax on your super nest egg, but do not need to as you could move to pension mode. The decision to move from accumulation depends upon your age and personal circumstances. This includes, but is not limited to, your taxation situation. It is worth seeking support to ensure that you time this move to maximum financial advantage. This will involve many other factors including how you will start a retirement income stream. Our Understanding Super consultation can help with this.
Having life insurance within your super fund can add to your sense of security. That said, it is worth checking the amount you are charged for your insurance and the type of cover this provides. Life insurance can be very expensive for older people and the benefits can decline quickly so it is worthwhile considering how important having cover for loss of life, income protection or permanent disability insurance is for you when you are at or near the end of your working life. Does the annual fee for insurance represent an impost that you feel it’s time to remove?
What if you have a Self-Managed Super Fund?
Just over 1.1 million Australians are in a Self-Managed Super Fund (SMSF). Such funds control $822 billion in assets, which accounts for about 25% of all assets in the Australian super system. The annual audit of each fund requires trustees to sign off on financial statements and at this time member statements are generally issued. This means that SMSF members may not receive this information until the fund’s tax return is completed, which could be many months after the July- August timeline for retail and industry fund updates.
Regardless, as a SMSF member, your statement should cover each of the above information points. And you can still review your situation by comparing your own SMSF returns, fees, tax, and other outgoings to see if your fund is pulling its weight compared to other types of super funds.
One last thing to consider with your annual statement:
Having just checked your key performance indicators for the past 12 months, it’s even more important to think about the long term. What is your time frame? Have you thought about how long you want your super to support you? If so, what is your expected lifespan? And how might your super be supplemented by an Age Pension benefit at some time? Would you like to see these calculations in action? The Retirement Essentials Retirement Forecaster adviser-led consultation will help you do just that.
What’s your approach?
Do you get great value from perusing your annual super statement? Or do you find these updates less than useful?
Are they easy to follow?
Does your fund go the extra step and explain how your savings can form a retirement income stream?