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Road test your super statement to help boost your retirement nest egg

Sep 28, 2014

ANNUAL superannuation statements are hitting mailboxes. Instead of skipping to the closing total and filing it away take our super statement road test to see how your retirement savings are really travelling.     

PERSONAL DETAILS: With more than $19 billion in unclaimed super, the first thing to do is to check and update all your personal details, including making sure your fund has your tax file number, Deakin University senior lecturer in superannuation Adrian Raftery says. You can do this through the fund’s call centre or online. Don’t forget about any old funds from previous jobs. Check out the Australian Tax Office SuperSeeker service to see if you have any unclaimed money.

“Lost super is largely due to people not updating their address when they move — if you regularly move, consider using your parents’ address,’’ Raftery says.

CONTRIBUTIONS: Your statement will usually have a front page summary of the total contributions the fund has received, however, skip to the next page to see a monthly breakdown of payments. Check there are regular compulsory payments going in from your employer as well as any extra deposits or salary sacrifice amounts you have made. Unpaid or missing super should immediately be reported to your employer and the ATO.

“Ensure these amounts correspond with what your employer should be paying — 9.25 per cent of gross wages during the past financial year,’’ Raftery says.

As a quick guide, multiple your annual salary by .0925 to calculate the amount.

INVESTMENT RETURNS: Don’t be sidetracked by the dollar amount listed under investment returns on the summary page, instead look for the percentage return. Your statement must also include the total return as a percentage.

FEES: Your statement will list an amount, usually as administration fees in the main summary, however, this headline figure is just a portion of the total fees you actually pay. To find the total fees it usually involves looking for a written paragraph in the fine-print on your statement. This total includes various other charges by your super fund as well as fees charged by investment managers working for the super fund.

Once again the dollar amount is not that informative, you need to know the percentage to judge if the fees are reasonable.

As a quick guide: add the opening balance to the closing balance on the statement and divide the total by two. This gives you the average total balance during the past year.

Divide the “total fee” amount by your average balance — this gives you a percentage. How does this compare with others in your sector?

As a guide, according to SuperRatings the average fee for a retail fund is 1.79 per cent. Industry funds average about 1.02 per cent, government funds 0.86 per cent and corporate funds average fees of 0.87 per cent.

INSURANCE: How much insurance cover do you have and is this a suitable amount? Or do you need this cover at all? School leavers and young singles with no liabilities may not need any insurance, instead the premium money can add to their savings. 3P Financial chief executive Peter Ziggy also says make sure income protection policies continue until retirement age, some are scaled back earlier. “Also how long will you have to wait before the first payment to you — make sure it is not more than 30 days,’’ Ziggy says.

Many insurance costs have risen during the past year, check the total premium amount and compare it with other funds, Super Ratings managing director Jeff Bresnahan says. The difference can be at up to half, which can mean the difference of hundreds of thousands of dollars during a working life, he says.

GOVERNMENT TAXES: At first glance this seems pretty straight forward. This is basically the 15 per cent tax the government deducts from all super contributions. However, according to Bresnahan, some funds are calculating this incorrectly and not offering rebates to fund members.

The 15 per cent tax is taken from net contributions, that’s after administration fees and insurance premiums. If you are paying $1500 a year insurance premiums and $500 a year in fees, then the 15 per cent tax should not be applied to those costs and should be returned to you.

Ask your fund for a breakdown of these government taxes to ensure they have credited back any tax calculated on the total contributions before fees and insurance costs were deducted, Bresnahan says.

CLOSING BALANCE: This is the total amount you have in superannuation. “It’s basically like any other bank statement, it’s simply money in and money out. Just make sure you understand what’s gone in and what’s taken out,’’ Bresnahan says.

In some cases there will be two amounts that make up the closing balance, preserved and unreserved. Preserved refers to amounts that are locked up until your retirement and non-preserved is money that may not have the same restrictions. 

BENEFICIARIES: These are the people you name to receive your super balance and any life insurance if you die. Most nominations are non-binding which means the people you name may not necessarily get all the money, ultimately the trustees of your super fund will decide how the money is paid out. The alternative is a binding nomination which, in most cases, means the trustees will pay the money to the person or people named by you. Check this is up to date, especially after major life events such as a divorce, separation, death of a partner or new family members. MLC spokeswoman Lara Bourguignon says make sure you have named at least one beneficiary and if it is a binding nomination it must be renewed every three years. To receive the money tax-free, beneficiaries must also be dependants.

INVESTMENT OPTION: If you have not chosen an investment option, super funds will place your money in a “balanced” option — this is roughly 65-70 per cent risky assets and 30-35 per cent conservative assets. However, check your investment option to see if you are comfortable with the level of risk.

According to Deakin’s Adrian Raftery, the more risky assets, known as growth assets, the higher the potential return.

“You’d probably expect a 26 year old with their whole working life ahead of them to take a bit higher risk than a balanced option, such as growth or high growth,’’ Raftery says, “as they have another 40 years of working life to recover any losses”.

Each investment option offers a different average rate of return. About 80 per cent of workers have their money in a balanced option.

ARE YOU ON TRACK? Many super funds now include an estimated projection of how your retirement savings are travelling and what the likely final balance will be at retirement. In most cases, according to SuperRating’s Jeff Bresnahan, “it won’t be enough”.

“This is a rough estimate but it still gives you a pretty good idea based on your current savings rate and your investment option. But it also acts a trigger to perhaps consider beefing up your contributions,’’ Bresnahan says.

“I always say that you put your mortgage and your kids first, then superannuation third. However, as soon as those two major factors are taken care of — then fast track your super,’’ he says.

BENEFICIARIES: These are the people you name to receive your super balance and any life insurance if you die. Most nominations are non-binding which means the people you name may not necessarily get all the money, ultimately the trustees of your super fund will decide how the money is paid out. The alternative is a binding nomination which, in most cases, means the trustees will pay the money to the person or people named by you. Check this is up to date, especially after major life events such as a divorce, separation, death of a partner or new family members. MLC spokeswoman Lara Bourguignon says make sure you have named at least one beneficiary and if it is a binding nomination it must be renewed every three years. To receive the money tax-free, beneficiaries must also be dependants.

INVESTMENT OPTION: If you have not chosen an investment option, super funds will place your money in a “balanced” option — this is roughly 65-70 per cent risky assets and 30-35 per cent conservative assets. However, check your investment option to see if you are comfortable with the level of risk.

According to Deakin’s Adrian Raftery, the more risky assets, known as growth assets, the higher the potential return.

“You’d probably expect a 26 year old with their whole working life ahead of them to take a bit higher risk than a balanced option, such as growth or high growth,’’ Raftery says, “as they have another 40 years of working life to recover any losses”.

Each investment option offers a different average rate of return. About 80 per cent of workers have their money in a balanced option.

ARE YOU ON TRACK? Many super funds now include an estimated projection of how your retirement savings are travelling and what the likely final balance will be at retirement. In most cases, according to SuperRating’s Jeff Bresnahan, “it won’t be enough”.

“This is a rough estimate but it still gives you a pretty good idea based on your current savings rate and your investment option. But it also acts a trigger to perhaps consider beefing up your contributions,’’ Bresnahan says.

“I always say that you put your mortgage and your kids first, then superannuation third. However, as soon as those two major factors are taken care of — then fast track your super,’’ he says.

Original article published on news.com.au on 28 September 2014

Tags: 101 WaysFinancial PlanningPensionsRetirementSMSFSuper

Author: Mr Taxman

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