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The six fundamentals of super: how to maximise your nest egg

Sort out your super with these simple pointers

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Last updated: 14 July 2020

Need to know

  • Being with a low-performing super fund can cost a person $500,000 in their retirement
  • Many Australians miss out on tens of thousands of dollars through unwanted duplicate accounts, high fees and unwanted insurance
  • A few quick and simple checks on your super could make a huge difference to your lifestyle in retirement

It's easy to put off fixing up your super for a rainy day. If retirement is decades away, it can seem like a low priority. 

The good news is that there are a number of quick and simple steps you can take now to ensure your super is working as hard as you are. So here are our six steps to better super: 

1. Consolidate your super

Millions of Australians are wasting money on duplicate super accounts; the Productivity Commission found there were more than 10 million of these double-ups – the majority created unintentionally, generally when people change jobs.

If you have more than one account, you could be wasting huge sums of money on pointless fees and insurance premiums.

Having just two super accounts can cost a typical person $51,000 in retirement – roughly a full year's income after your working life.

The good news is that it is much easier to consolidate all your accounts into one than people think. Many funds say this process can be completed in ten minutes. It is also easy to consolidate your super through MyGov.

CHOICE tip: Not sure if you have multiple accounts? Visit MyGov to locate all your super accounts and trace any lost super you may have.

2. Choose a high-performing fund

It's easy to think that super funds are all the same, but the difference between a top performer and a struggler can be enormous. 

The Productivity Commission found that an Australian in one of the top MySuper products (which it defined as those in the top quarter of performers) would retire with an incredible $500,000 more than someone who spent their working life in one of the bottom quarter funds. Another way to look at this is that the difference between a top fund and a low-performing fund is 10 years of lost pay.

The key is to look for long-term performance, preferably of five or ten years.

Most Australians are free to change super funds. It's your money – make sure it is working for you. The table below shows the top ten performers for balanced MySuper products over 10 years. These are the default super products most people are automatically placed in.

CHOICE tip: Think about whether your super fund is right for you if the 10 year return is below the median.

 Fund name  Rank  Performance of balanced MySuper product over 10 years (as of 30 April 2020)
 Australian Super 8.00% 
 Cbus (Growth) 2 7.90%
 Unisuper (Accumulation 1) 3 7.89% 
 Care Super 4 7.73% 
 Hostplus (Balanced) 5 7.63% 
 Equip MyFuture (Balanced Growth) 7.59% 
 QSuper   7 7.59% 
 VicSuper Future Saver (Growth) 7.55% 
 Mercy Super 7.55% 
 BUSSQ Premium Choice 10  7.51% 

Source: Fund Crediting Rate Survey (SR 50 Balanced Index) 30 April 2020

3. Check your insurance is right for you

Many Australians are paying for insurance through their super that isn't suited to their needs. The Productivity Commission found that only around one in five people ever makes changes to this insurance.

Generally, you will automatically receive death and total and permanent disability (TPD) cover in the insurance in your super. Recent changes to insurance in super mean that some groups (including those under 15 and those who have never had a balance of more than $6000) no longer automatically get this cover. If this applies to you and you want insurance, you are able to 'opt in' to get this cover.

Many Australians are paying for insurance through their super that isn't suited to their needs

Death cover will provide a lump sum to your dependents if you die before a certain age, generally 70. For those with no financial dependents (such as a financially dependent partner or children), there may be little value in this cover.

Some funds also include income protection. This will generally provide you with around 75% of your usual income for up to two years if you become ill or injured and are temporarily forced out of work. 

Multiple policies?

One important thing to note here is that many insurance policies in super prevent you from claiming from more than one insurance policy. If you are holding multiple policies with the thought of possibly claiming from them all in the event of illness, injury or your death, make sure the policies you have actually allow you to do this.

CHOICE tip: A major life event is a good opportunity to review whether your insurance is still right for you. This can include moving in or out of the workforce, having a child, buying a house or getting married.

4. Ensure you aren't paying too much in fees

Fees may seem like a minor part of your superannuation, but over the years, they can add up and have a massive impact on the size of your nest egg. 

The Productivity Commission found that an increase in fees of just 0.5 percentage points can cost a typical person in full-time work a whopping $100,000 by the time they retire.

It may seem logical that paying high fees would get you high returns. This isn't the case – the Productivity Commission found higher fees are actually associated with lower returns.

The Productivity Commission found higher fees are associated with lower returns

Finding the fees your super fund charges isn't as easy as it could be. Funds generally charge you a number of fees and these combine set fees and percentage-based fees. 

Assuming you have a MySuper account (these are the default super accounts you go into if you don't make a choice), your fund will have published a dashboard online. This will show you the total fees you would pay on a balance of $50,000. This can be a helpful example of the level of fees you might be paying. Funds will often have an online calculator for you to calculate exactly how much you will pay.

Our table/interactive below shows you the fees for each MySuper product. You can find your fund here and see how the fees compare. 

CHOICE tip: A good rule of thumb here is that if you're paying more than 1% in total fees each year, you're probably paying too much.

5. Nominate (and update) your beneficiaries

While superannuation isn't intended to be a vehicle to pass on money to the next generation, you may outlive your savings and have some left over when you pass away. 

Unlike your other assets (such as your house, bank accounts and possessions), your will doesn't cover your superannuation savings. You can either make a binding nomination or a non-binding nomination, though some super funds only allow non-binding nominations.

Binding vs non-binding nominations

A binding nomination means the fund has to follow your wishes as to who gets your remaining super.

A non-binding nomination means that the fund will ultimately decide who gets any super you leave behind. They may take your wishes into account, but they're not legally bound to follow them.

Unlike your other assets, your will doesn't cover your superannuation savings

Bear in mind that you can only nominate certain groups of people as beneficiaries – a charity, for example, can't be a beneficiary. A beneficiary needs to be some kind of dependant. This can be a spouse (including a de facto partner) and/or your children. 

It can also be someone you are in an interdependent relationship with – this is where you live together and have a close relationship with one or both people supporting the other, be it financially or in terms of domestic support and care.

If you want your money to go to someone who isn't a dependant (such as your parents or a relative), you'll need to nominate a legal personal representative that can distribute the money according to your wishes. Your super fund can give you more information about this process.

Lapsing vs non-lapsing nominations

Another important point to note here is that in most cases nominations will lapse after a couple of years and you need to update them. This is called a lapsing nomination. 

A small number of funds offer non-lapsing nominations. This is where the nomination stays in place indefinitely. 

While it may be frustrating that your fund won't let you make a non-lapsing nomination, there is some logic to requiring people to renew their nominations from time to time. For many people, life events such as relationships beginning and ending and children being born will mean that nominations need to be updated over time to reflect the person's wishes.

CHOICE tip: Contact your fund for more information on how to make a nomination and how to keep it up to date.

6. Don't panic!

Super is a long-term investment. With this in mind, experts have warned against trying to move your super around to beat disruptions to the share market such as COVID-19 or the global financial crisis. 

History has shown simply staying invested in the share market has produced better results than trying to 'time' the market by moving around your investments. 

Most people's super is in a balanced portfolio. This means your money is invested in some shares, but also some cash, fixed interest options, infrastructure and property. 

For those who are closer to retirement, being invested in a low-risk/low-return strategy (such as a portfolio which is invested in more cash and fixed interest options) might make more sense. See our guide on super for those approaching retirement.

You may see news reports about which super funds are doing well that month, but you don't need to worry about these. The more relevant information is how a super fund performs over the long-term, 5–10 years is a better benchmark than monthly fluctuations.

CHOICE tip: Don't chase last year's best performed fund or the hot investment of the month. Super is a long game.

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