Fresh Approach To Super
Sydney Morning Herald
Wednesday January 14, 2009
The strategy To undertake a new year's spring-clean of my super.
Super? I can't even bear to think about it, given how my fund has been going backwards. Most funds have and there are more losses to come. We don't have the December returns yet, but SuperRatings reported the average balanced fund lost 12.21 per cent in the financial year to November 30 and was down close to 20 per cent over the past 12 months. Given your latest statement probably showed the losses only to June 30, odds are the next statement won't look too pretty either.But that's no reason to throw up your hands and declare it's all too hard. As the Superannuation Minister, Nick Sherry, pointed out recently, super is a long-term investment and the inevitable ups and downs - even ones as nasty as we're seeing now - are less important than having strategies in place to maximise your long-term returns. Review your fund by all means - having a long-term plan doesn't mean you should stick with a fund if it's an absolute dog. But don't sacrifice a sound long-term plan on the basis of short-term losses.So what should I be doing? The chief executive of the Association of Superannuation Funds of Australia, Pauline Vamos, says you need to consider how long you have until retirement and how long you will need to receive an income during retirement (it can be as long as 30 years). While super is on the nose with many investors, she says its tax benefits, regulatory protection and the trustee system under which funds are run still make it an attractive way to save for retirement. She says members should take this opportunity to engage with super. Find out what investment portfolio you are in and how it is invested. Most fund members are in their employer's default fund, which usually claims to have a balanced portfolio. But a closer look can reveal big differences in asset allocations. Some default funds have quite aggressive portfolios with 75 per cent or more in assets such as shares and property whereas others may have only 25 per cent or 30 per cent. Talk to your fund or an investment adviser if you are uncertain whether the asset mix is right for you.It's tempting in this environment to switch to a more conservative portfolio but this should be weighed against the fact that you would be crystallising losses in your existing fund, Vamos says. With interest rates lower, it's also going to be harder to earn decent returns from cash.Sherry says you should look at your fund's performance from the past five, seven or even 10 years rather than just focusing on the latest losses. "These timeframes provide a more accurate measure of your fund's performance over a market cycle, including rising, falling and flat markets," he says.Compare your fund with others to see how it stacks up - but be careful to compare like with like.Sherry says members should also be reviewing whether they are contributing enough, their life insurance cover and the fees their fund charges. He says fees can vary significantly between funds and a 1 percentage-point difference can have a big impact on your final retirement benefit. Treasury estimates the industry average is about 1.25 per cent a year, while recent Rice Warner Actuaries research put the average at 1.21 per cent. Find out what your fund is charging and if it's higher, ask what extra benefits you are getting.Sherry says consolidating your super can also save on fees. He says there are 6.4 million lost super accounts totalling $13 billion being held on behalf of fund members. You can find out if any of that is yours at the Tax Office website https://superseeker.super.ato.gov.au/individuals/default.aspx?pid=0 or by phoning 132 865.
© 2009 Sydney Morning Herald
