Real lost super: could 93% of your superannuation disappear?

When we hear ‘lost super’, we imagine lots of funds that we don’t know about. This story is about another kind of lost super. It’s the money you had in your super account, but it’s disappeared.
 
So, could 93% of your superannuation disappear?
 
Very short answer: yes.
 
Longer answer: if you stop contributing, and you’re paying fees and premiums, it can happen. Do that for over a decade, and you could have next-to-nothing left.
 
My statements come from a real-life example, not a hypothetical one.

Candice’s story

At the third ‘Women and Superannuation’ workshop Fran and I delivered for WA’s Department of Local Government and Communities, we met Candice (not her real name). She shared her story of superannuation woe.

Nearing retirement, Candice recently saw a financial planner. She knew she had two superannuation funds:
  • One fund her current employer was paying into.
  • One fund hanging around from her previous employer.
She had been ignoring the latter, but remembered her balance was over $168,000 in 2004. With the two funds, Candice thought she’d have enough for a reasonable retirement.
 
Then she got the statement of current balance. It was under $11,000.
 
Over thirteen years, $157,000 disappeared from Candice’s fund.
 
Candice showed me the 2003/4 statement, and the one from 2017. She called the fund in shock to complain and find out where her money had gone. Their (inadequate) explanation was: ‘We’ve had three crashes since 2004.’
 
Candice is now looking down the barrel of having to sell her home to be able to afford to retire.
 
It’s hard to imagine what a blow this must have been. I’m gobsmacked.
 

Thinking you’ve got $168K and finding it’s down to $11k probably looks like this…

How does this happen?

The mathematics is straightforward when you’ve got an inactive fund – one you or your employer are not paying into.. Here’s the assumptions:
  • Your balance is $X.
  • You pay fees and premiums ($Y), which usually includes:
    • An insurance premium for life and permanent disability insurance. Not everyone does this as it is elective. Some people add in other types of insurance like income protection.
    • A fixed fee as a member of the fund
    • A direct variable fee, depending on how your investment mix performed, and
    • An indirect variable fee within the investment mix you’ve chosen.
  • You earn (or lose) capital depending on how your investment performs. This is generally represented a percentage, so we’ll call it Z%.
Three things can happen:
  1. Your balance goes up if your capital earnings are more than the fees and premiums (Z% of $X > $Y)
  2. Your balance stays the same if your capital earning are the same as your fees and premiums (Z% of $X = $Y)
  3. Your balance goes down if your capital earnings are less than the fees and premiums (Z% of $X < $Y)
If #3 happens often enough, you erode your capital.
 
The widely quoted #1 rule in wealth is ‘Preserve the capital’. If you lose 50%, you have to make 100% to get back to where you were. The moment capital declines, you’re on the slippery slope.
 

Honestly, we’ve had three crashes. That’s where your money went.

No, really. How the hell does this happen?

Like me, I bet you’re thinking:

  • How is this even legal?
  • Why didn’t the company warn her that her funds were being eaten away?
  • Why did she ignore it?
It’s legal because superannuation is a relatively new industry and, as cases like this show, it’s not perfect. There isn’t enough protection in place for the consumer. Candice has little recourse.
 
On why the company didn’t warn her: I cannot imagine. It’s bad business for everyone. With the capital gone, the fund will get less in fees in total than if the capital has grown. It makes no sense. A simple algorithm could have flagged accounts in steady decline like this. I can only guess that:
  • the company’s systems are abysmal, or
  • they stick their head in the sand in cases like this, because in the end they get the money anyway.
And finally, why ignore a fund for 13 years? Well, take a moment now to reflect on how much attention you give your super:
  • Do you know the balance?
  • Do you know what % fees you pay?
  • Do you know hat your life insurance premium is, if any?
  • Do you know what mix of assets you’re in?
If you answered ‘no’ to most of these, you are unfortunately in the majority.
 
Most people pay far too little attention to their super simply because it doesn’t feel like it’s theirs. It’s an abstract thing. An account you can’t touch till you’re 65+, and that you don’t think until the statement arrives.

Oh my goodness, did you know our super balance went down this year!?

The double whammy for women

It’s worse for women for two reasons:

  • The gender pay gap: We’re paid less, so we get less super.
  • Career breaks: we are more likely to take extended breaks from work for family, so we get less super.
So, as women, we’re already behind the eight-ball. Then we throw in a general sense of apathy or neglect towards our super, and bingo! You get conditions that allow a superannuation company to basically pillage your money.
 
And it is YOUR money.
 
You’re going to need it to support you in the lifestyle to which you have become accustomed. Goodness knows, the pension won’t get you there. That’s IF the age pension even exists when most Gen Xers and Millenials retire.
 
I will do what I can to help Candice, and she will no doubt be seeking professional advice. The media is already interested in this story. I hope the company in question is sensible enough to give Candice her money back to avoid bad publicity.
 
Meanwhile, let’s help you avoid Candice’s situation.

You want your super account to stack up!

Your turn

Here are two things you can do in under 10 minutes – RIGHT NOW – to reduce your chances of ending up in Candice’s situation:

  • Check your super accounts. Here’s a SlideShare I created recently with the step-by-step process using myGov. Rolling them into one is generally a good idea so you reduce your fixed fee component.
  • Calculate your fees. What are the direct and indirect costs of your investment on your super statement? Turn that into an annual %. If it’s over 1.5%, you could do better – time to shop around. Try the MoneySmart suggestions for comparison websites.

If you’re in Perth, you might like to come along to one of the DLGC’s ‘Women and Superannuation’ sessions. Get yourself on the waiting list to learn when the next sessions will be run.

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