Oh yay I’ve got my Superannuation Annual Statement!
Fran’s put together 5 Simple Steps to help you Understand and Review your Superannuation Statement:
Firstly, pat yourself on the back. You’ve kept your contact details up to date and your fund knew where to send the statement. Secondly, you opened the envelope.. that’s a good start!
You’ll need to resist the urge to file it away, and make some time for a basic review. The ‘Productivity Commission Report on Super‘ presented in November 2018 is full of reasons why you need to give this document a look over.
There’s lots of information laid out for you and this is a great time to review your decisions.
Why your superannuation statement is important
This little pot of gold must grow to maintain your lifestyle for 30 or 40 years after you retire!
The report uses an example of an employee starting work at 21 and retiring at 65. On a constant salary of $50K per annum, they will have $100,000 less (12%) in their fund if they paid just 0.5% more in fees each year. Your money is in the fund for a LONG period of time and small charges can have a big impact over the course of those years.
Understanding your superannuation statement
Here’s a step-by-step process to help you review your superannuation statement:
1. Check your details are correct.
Address, contact information, date of birth, tax file number and so on. If you think you’re missing a statement, the address is the most likely problem.
You should also jump on the ATO website and check for any superannuation you may have lost track of.
If you have a MyGov account, check there first (here’s some instructions from Lacey on how to do that), or click on this link for a form to request help with locating lost superannuation: https://www.ato.gov.au/forms/searching-for-lost-super/.
2. Locate the summary
This shows your opening balance, benefits paid and deductions.
Opening Balance
If you have your previous report, the opening balance on your new superannuation statement should be the same as the closing balance on the prior one.
If you have only one fund, the contributions should equal the compulsory rate of 9.5% of your income. So if you’ve earned $80,000 according to your PAYG Statement, the contributions should be at least $7,600. Some companies pay higher than the minimum. You’ll find a transaction report included in your statement to show the deposits made to your fund. If the amounts don’t look right, look into it in more detail.
Benefits Paid
Next, look for the summary of benefits “paid” to see what has been paid out of the fund. Generally this will be pension payments and other deductions such as fees, tax on your contributions and insurances. We’ll go into more detail with these in the next steps.
Now let’s look at your net earnings. This will show you how much your super fund earned. It could be from interest or successful investment. After deducting the expenses, your fund will deposit the net earnings into your account. This amount should be positive and somewhere between 2% and 10% of your account balance.
Closing Balance
Lastly there will be a closing balance on your superannuation statement. This is the net value of your fund at the end date of the report.
Your balance will be divided into 3 sections:
- Preserved – money you cannot access until you meet a condition of release, most often this will be reaching your preservation age (somewhere between 60 and 70 depending on your birth year)
- Restricted non-preserved – some amounts paid in before 1/7/1999
- Unrestricted non-preserved – amounts you can withdraw without meeting a condition of release (generally after-tax contributions you have made)
Hopefully the balance gives you a reason to smile!
Although it may be locked up for now, this is your money, and some day it could make a huge difference to the quality of your life. It’s important to keep track of it and do whatever you can to make sure that balance keeps growing.
3. Review your current investment choice.
Most funds offer a range of different investment types. If you don’t make your own selection, you’ll be placed in a default fund based on general criteria such as your age. These funds may be called “balanced” or “growth” funds or they may also be comprised of a single type of investment like “Australian Shares”.
The investment choices are categorised according to the degree of risk associated with them. Funds that have their money in bank deposits and bonds will be low risk. Funds that have invested in shares will be high risk.
Risk ‘Rules’
The general rule is, younger folk (whose money will be in the fund for decades) are allocated into higher risk investments and older folk (nearing retirement) are allocated to low risk investments. It makes sense, but this is certainly an area where your choices could effect the growth of your nest-egg.
Most superannuation funds allow you to allocate your funds by percentages. For example, you might specify 80% in balanced funds and 20% in growth funds, or you can select from the particular offerings with this provider.
No doubt about it, this is one of the most confusing and difficult matters when thinking about your superannuation.
We have approximately 40,000 different Superannuation Products in Australia to choose from, and no comparison website is going to cover more than a handful of these.
Add to this the overbearing reality that past performance really is NO GUARANTEE of future performance, and you could be forgiven for deciding you’ve heard enough!
The truth is, we’ve had a long period of good economic conditions and it’s been 10 years since the GFC and the horror stories of superannuation balances disappearing overnight.
Don’t Panic!
Don’t panic about which individual investments to choose, instead check which type of investment your money is in and whether you can sleep well with that selection. If you’re not comfortable, contact your fund, change it, and move on. You could change the percentages each year, or every few years, or perhaps you’ll start out with high risk funds and move it down to lower risk as you near retirement. You can get as technical with this decision as you like by looking into detailed reports on the performance of each option, or you could choose on the basis of risk levels.
The people whose funds didn’t take a big hit in the GFC were those who reacted by moving their superannuation into a “cash” option. Most superannuation funds allow you to move your money from one investment choice to another without charge, several times a year. So if you are worried about the possibility of a severe economic downturn, contact your fund and move your money into “cash”. It won’t grow very fast, but it certainly won’t disappear.
You’re almost there …
4. Review those deductions.
There are some you can’t change (contributions tax and fixed fees for example) but other deductions, such as insurances and variable fees, can be substantially affected by your choices.
Fixed Fees
You will see a ‘fixed fee’ which is a management cost charged at the same rate to each account holder. This fee is often left out when superannuation funds publish their results because it cant be converted to a percentage. For example, a monthly fee of $30 will be 3.6% per annum of an account of $10,000, whereas the same fee charged on an account of $100,000 will be only .36% of that account.
Variable Fees
Variable fees relate to the type of investment and will be higher where more administration is required. If you choose an investment option that requires frequent buying and selling of assets (like shares) it will require more hands-on management and fees will be higher. It’s also likely to be higher risk and would be expected to have higher returns.
Total Fees
Add together any fixed fees and variable fees and divide by your account balance. You’re looking for a figure between 1% and 2%. If your balance is low ($20,000 or less) the figure will be higher. If you’re in a fund with fixed fees, they’re usually in the $hundreds per annum.
Industry funds are generally not geared towards profit, meaning they have lower fees. The flip-side is, the funds that ARE set up to make profits do so by increasing your account balance. If your account goes up as a result of better returns, it’s a win for you!
Keep an eye out for one-off charges like ‘advice’ and ‘exit’ fees. These relate to events that occurred during the reporting period.
Since increased competition has bought fees into focus many have been scaled down and ‘switch’ and ‘exit’ fees are now rarely charged.
Insurance
Paying insurance out of your superannuation account is quite common and often makes good sense. You should make a point to review this regularly to ensure it suits your current circumstances.
Do the types of insurance you have cover what you need covered? If your family situation has changed maybe you need to adjust levels of life or TPD insurance? If your employment has changed, perhaps you need to change your income protection policy? Get a quote from a different insurer and check the amounts you are paying seem reasonable.
Consider the effect of having these policy payments coming out of your superannuation fund. Remember these are reducing the amount you have in your balance. If you have a small balance do you really want it used up on insurance? Especially if you are off work for some un-insured reason and there is little or nothing going into your account.
5. Check your balance.
There are new rules governing inactive funds of $6,000 or less. These rules allow your Superannuation Fund to cancel your insurances and transfer your balance to the ATO for management.
If your balance is under $10,000 make sure you understand the implications and don’t get an unexpected surprise. Your fund should give you adequate warning, but you’ll need to make sure they have your current contact details. Probably best to give them a call if you’re unsure.
Your Turn
Hopefully these 5 simple steps have helped you understand and review your superannuation statement. We encourage you to take an interest in the management of your super and to ensure you’re on track for a comfortable retirement.
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