A corporate superannuation plan is the default superfund that a new employee has the choice to join when they commence as an employee at a company. After reviewing our clients’ corporate super plans, it’s clear there is plenty of opportunity for members to utilise their default super fund in a more optimal way. This article looks at some quick, simple wins that a member – of any corporate fund – can take advantage of today.
Super charged boost #1: Paying multiple fees and premiums?
If you are like many Australians entering a new job, it’s likely that you have accepted the default employer corporate plan with the default investments and insurances, perhaps not considering current superannuation arrangements that may already be in place.
Quite often, fund members have multiple funds and this doubles up on fees and also lacks one consistent investment strategy. Fund members may also be doubling up on insurances, such as salary continuance insurance, and don’t realise that they can’t claim on both policies at once should they need to.
If you are considering consolidating your super funds, be sure to compare the fund administration fee, investment option fee, the insurance cover and premium. Also keep in mind if you move away from your employer fund there is the possibility of losing benefits such as lower fees and automatically accepted insurance (no medical underwriting) which is usually part of a group employer plan.
Super charged boost #2: Do you understand where your super is invested?
If you joined the fund after January 2014, it’s likely that you will be invested in a MySuper compliant product.
MySuper is part of the Stronger Super reforms announced in 2011 and took place to ensure market participants create a range of easily comparable, relatively simple products, which in turn will focus on net costs and returns.
Under current legislation, there are two types of default investments allowed. The first is an aged based or “Life Cycle” investment option which changes its investment style and mix overtime as the fund member approaches retirement.
The second is a single diversified investment option that is generally based on the age demographic of the members within an employer super fund plan.
This does not necessarily mean that the default is appropriate for you.
To help assess whether or not this is appropriate for you, you may want to consider:
- Investor profile: are you a conservative or a growth investor?
- Attitude to volatility: are you likely to make emotional decisions based on movements in the market?
- Time horizon: how long do you have in the work force? When do you want to retire?
- Diversification: is your super invested across the different asset classes to manage risk?
There is plenty of opportunity for members to utilise their default super fund in a more optimal way
Super charged boost #3: Not all insurances are created equally
Just because you have default insurance offered in your fund, it does not mean you are adequately protected to the level you need to be.
Typically, a person will receive default cover based on income levels. This is a great start as a base but consider if the following events are adequately covered.
If a death or total disablement occurs, have you factored in an amount to clear debt? Have you considered that your household income will now reduce – is there an amount factored in to ensure a similar standard of living for your surviving family? Have you considered carer costs if you cannot look after yourself? If you have children, have you considered the impact of their ongoing educational expenses?
If a major medical event should occur such as cancer, heart attack or stroke, have you considered protection to ensure medical costs are covered at a minimum? You may also want a buffer to reduce some debt, have an amount for emergency or if you require time out of the workforce for recovery.
If you are unable to work due to injury or illness, have you considered the impact of a drop in income or even worse, no income at all? You may want to review your income protection policy to ensure that your income is supplemented whilst you are unable to work. Things to consider include how long you are willing to wait for your first monthly payment or how long would you want the benefit for if you had to rely on it for income.
Super charged boost #4: Who is the real beneficiary?
It’s important that you have made clear nominations about what happens to your super balance in the event of your death. It’s all too common that advisers see account holders not making a nomination of beneficiaries. Without any nomination, your super is potentially contestable – for example, by a relative who you might not have a good relationship with.
If you are proactive and have made a nomination, it’s important to review your situation on a regular basis to ensure the beneficiaries are still appropriate. This is especially important if you have had a major event in your life such as a marriage, inheritance, divorce, new birth or asset acquisition. Also, be aware that you may need to refresh your nomination every three years depending on your superfund and type of nomination.
Because planning your estate is personal to you and your family, it’s important to seek advice for your specific situation.
Super charged boost #5: Is your lost Super sitting with the ATO?
It’s not unusual that we discover funds for clients that they did not even know they had. In one particular case, we were able to retrieve a remarkable $40,000.
If you have a lost account or not sure if you have lost any super, your ‘lost’ super account could be transferred to the ATO without your consent. The good news is that you can still retrieve it.
How can this happen? If you change jobs regularly, worked in part time jobs, started your own business, moved house, or just simply not paid attention, you could lose track of any correspondence from your super fund. Without regular contributions or contact, your account could be transferred to the ATO as lost.
If this is you, the ATO offers a free online tool called SuperSeeker which will give you a good start in relocating any lost super or your adviser can help you.
Although retirement seems a long way off for a lot of us, it’s worth spending a few hours on a regular basis to take stock of your situation and consider where things can be improved.
Prosperity Wealth Advisers is one entity within the Prosperity Advisers Group which spans three office location.
Disclaimer: Prosperity Wealth Advisers ABN 32 141 396 376 is an Authorised Representative and Credit Representative of Hillross Financial Services Limited, Australian Financial Services Licensee and Australian Credit Licensee Ph. 1800 445 767. Any advice contained in this document is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Before making any decision, you should consider the appropriateness of the advice with regard to those matters. If you decide to purchase or vary a financial product, your advisers, our firm, Hillross Financial Services Limited, its associates and other companies within the AMP Group may receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Ask us for more details. If you no longer wish to receive direct marketing from us please call us on the number in this document and if you prefer not to receive services information from AMP, you may opt out by contacting AMP on 1300 157 173.