Your superannuation – what to think about before you make changes.

The Pandemic has given rise to a great deal of change recently, and you may have particularly seen this reflected in your superannuation.

It’s been bumpy to say the least. Stock markets have plummeted and then rallied and in parts rebounded quicker than expected other stocks have stayed down; the banking sector that you like so many Australians support (and are supported by) via your superannuation is preparing for, and trying to avoid an uptick in mortgage defaults when JobKeeper ends in September. And added to that, for the first time ever, the Government has allowed people to withdraw up to $20K from their super balances if they’ve suffered hardship during Covid.

So for a lot of people looking at their superannuation statement this year, it may look a little bleaker than they’d anticipated and that’s given a lot of people pause for thought in terms of what they might do next. And especially if you’re a woman – who according to Financy research already have about 28% less in their superannuation accounts compared to men.

According to the Workplace Gender Equity Agency, Covid stand-downs, layoffs and drops in working hours have especially affected women – in that their workforce participation rate decreased by a whole percentage point more than men (2.9% drop vs 1.9%). And of course more women work in casual roles that saw them miss out on both JobSeeker and JobKeeper – all of which not only impact their take home pay, but their superannuation both now and in the much longer term.

If you missed out putting just $1000 into your superannuation now, you could be missing as much as $5-16,000 (calculated at 5 and 8%) respectively over a 35 year period. Now, sure the markets go up and down so, it might be less, it might be more, but that’s just $1000. Even if you’re earning the minimum wage of $38,520 indexed to an inflation rate of 1% – with no change in the super guarantee rate of 9.5% you’d be putting $3,659 into super a year – which again over a 35 year period you’d put in a total of just over $152K – but, thanks to the power of compound interest you would be likely to have a total somewhere close to 400K (calculated at a conservative 5%).

Hence you can see why so many people are wary of Australians taking up to $20K out of their super even if they’ve 20,30 or 40 years to go until retirement.

But let’s say, you’ve decided not to withdraw money from your superannuation, yet you looked at your most recent super statement and wondered what was going on and if there was something you should change or do. So we thought we’d discuss some of the things that might be worth considering if you’re looking to change things up.

Review your fees against performance 

In order to do this, you’ll need to not only look at your superannuation statement, but you’ll also need to wade through your fund’s PDS (Product Disclosure Statement). The important thing to note here is that all superannuation funds charge fees – but the lower you can get them, without sacrificing performance the better as higher administration costs can wear down your super balance over time.

Think about which of your fund’s risk strategies is appropriate for you

lots of funds have different types of investment strategies you can request to use. However, sometimes these strategies just get chosen for you based on your age without taking into account what you’re aiming to achieve. A growth strategy allows for a bit more risk and volatility, generally selected if you won’t be accessing your super for at least 10+ years with the thinking that over time, the ups and downs of the market smooth out and you’re likely to see a higher rate of return (which historically ie: over the last 20 years is true – but what happened in the past doesn’t always prove true in the future). A balanced strategy, ideally again for those with more than 10 years to retirement, is split between shares/property and fixed interest/cash-based investments – although weighted more heavily towards shares/property. A conservative strategy is used to protect your super asset if you’re thinking you’ll want to start accessing it in say the next 5 years. And although you’ll likely still split your assets between shares/property and cash/fixed interest, they’re likely to be weighted more towards cash/fixed interest.

Now that being said, you might be 30 years old with 35 years to go and want to go with a conservative strategy or you might be transitioning to retirement and want to go all in with a high growth strategy. It is completely up to you. Of course, you’d want to talk through the risks and returns with a qualified professional – all of whom have to do ongoing and significant studies to remain registered as a financial planner these days.

Is it time to reconsider an industry fund, retail fund or SMSF?

An industry fund might have lower fees, where as a retail fund might give you more say over the kinds of investments you hold (ethical or sustainable stocks) and possibly deliver you tax benefits and greater transparency. And SMSFs, although highly regulated, give you the ultimate choice in what you invest your super in, including property. There are reasons for and against each, so it’s best to talk through your plan with a qualified professional as to what’s appropriate for your unique set of circumstances.

Are you able to put a bit more into your superannuation?

Now this might seem like a really odd question, particularly when so many people are stretched thin. But if you’ve had a payout from a termination, you get a chunk of cash back from your next tax return, or you’ve been so careful with your spending during Covid, you’ve a little bit leftover, consider putting some into your super. Remember $1000K today could be as much as an extra $5-16K in 35 years). Of course, you need to make sure you don’t go over the superannuation caps (currently $25K a year per person) and it’s not going to leave you financially short.*

All of this is really about your superannuation really being your money, even if you can’t touch it for very long time. If someone gave you $1K, $10K or $100k would you just leave it sitting on a bench in the rain and wind, not caring about it? Didn’t think so. Your Superannuation is real money and it’s in your best interests both now and in the future to be as interested in it and take as best care of it as you can.

And that’s where we can help. Mason Lloyd can provide clients like you with personal advice in relation to superannuation and self managed superannuation funds through their association with SAN – the SMSF Advisers Network. If you’d like to talk through establishing an SMSF, we’d love to talk with you. You can call us on 02 6023 1700 or get in touch via the form below.

* The other thing you could do with a cash windfall is put it into your mortgage as owner occupied mortgage debt isn’t tax deductible.