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The six fundamentals of super: How to maximise your retirement income

Sort out your super with these simple pointers.

Last updated: 19 September 2022

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 you can take some easy steps now to make sure your super is working as hard as you are.

Here are our six steps to better super: 

1. Consolidate your super

Australian Taxation Office (ATO) figures show that about four million Australians have more than one super account.

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

In fact, 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's much easier to consolidate all your accounts into one than people think. Some funds say you can complete this in a few minutes. It's also easy to consolidate your super through MyGov.

Recent policy changes mean the number of Australians with unwanted duplicate super accounts is shrinking. But it's still worth doing a quick check to make sure you're not wasting money.

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 (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 the difference between a top fund and a low-performing fund is 10 years of lost pay.

Checking how your fund performs has become much easier with the ATO's super fund comparison tool. This tool is free and independent, and lets you easily compare your fund with others in terms of net returns over seven years. You can also see if your fund has passed a basic 'fitness test' for building up your retirement income.

In its current form, the tool only compares MySuper products. These are the 'no frills' super products that most Australians are in. 

CHOICE tip: Use the super fund comparison tool to find a single high-performing fund to build up your retirement income.

3. Check your insurance is right for you

Many Australians are paying for insurance through their super that isn't suited to their needs. Yet the Productivity Commission found that only about one in five people ever change their level of default 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 aged under 25 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 can '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 insurance. This cover will generally provide you with about 75% of your usual income for up to two years if you become ill or injured and are temporarily forced out of work. 

One important caveat here is that you may not be able to claim on multiple policies with the insurance you have through your super. If you're 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 let you 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. Make sure 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, but it doesn't – 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. 

The best way to compare fees (assuming you're in a MySuper product) is again the ATO's super fund comparison tool. Using the personalised version of the tool shows you exactly what fees you would pay on your current super balance.

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

5. Nominate (and update) your beneficiaries

Superannuation isn't intended to be a vehicle to pass on money to the next generation, but you may outlive your retirement income and have some left over when you die. 

Unlike your other assets (such as your house, bank accounts and possessions), your will doesn't cover your superannuation savings.

So you can either make a binding or a non-binding nomination, although some super funds only allow 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 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 do so.

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 dependent, such as a spouse (including a de facto partner) and/or your children. 

It can also be someone you're in an interdependent relationship with – this is where you live together and have a close personal relationship, providing financial support, domestic support or personal care to each other before the person's death.

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 who can distribute the money according to your wishes. Your super fund can give you more information about this process.

Lapsing vs non-lapsing nominations

Lapsing nominations only last for a couple of years, and then you need to update them. 

Non-lapsing nominations stay in place indefinitely, but not all funds offer this feature. 

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

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

For those closer to retirement, being invested in a low-risk/low-return strategy (such as a portfolio that's invested in more cash and fixed-interest options) might make more sense. See our guide to super for retirees and 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 – five to 10-year performance is a better benchmark than monthly fluctuations.

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

We care about accuracy. See something that's not quite right in this article? Let us know or read more about fact-checking at CHOICE.

This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.

Stock images: Getty, unless otherwise stated.