The Productivity Commission released its
draft report this week into the efficiency of the Australian superannuation system. Its findings are concerning, and all Australians must take an active role in choosing the most appropriate superannuation fund for them. If you don’t, the Productivity Commission suggests it could cost you between $61k and $407k, depending on your age.
What the productivity commission found
The productivity commission found that many superannuation funds recommended by employers failed to deliver adequate investment returns. They described it as a bit of a lottery. That is, if you’re lucky enough to land in a good fund, chances are you could be several hundred thousand dollars better off.
Also, they were critical of the fees scales that the superannuation industry is charging. They noted that whilst the industry has grown significantly in size, that that growth hasn’t translated to economies of scale.
Finally, another key finding was that many Australians have multiple superannuation accounts which attract separate fees and erode retirement savings.
So, how do you know if you’re in the right fund? Let’s have a look at your options.
A retail fund is not a good option
A retail superannuation fund is one that is operated by a for-profit business such as MLC, AMP, ANZ (OnePath) and the like. These products are almost always more expensive and deliver inferior investment performance (as noted by the Productivity Commission).
If you’re in a retail superannuation fund, typically, my advice is to move your super into a better option. Of course, before switching your super you must understand the repercussions of doing so as it could impact your benefits, insurance and so on. The best thing is to get independent advice.
A Self Managed Super Fund (SMSF) is probably not a good option either
SMSFs are the largest sector of the superannuation industry representing about one third of superannuation savings. I believe, SMSFs are over-recommended by accountants and financial planners.
Assuming that you don’t have complex financial affairs, significant wealth, estate planning challenges or any other complexity, the only reason you would need a SMSF is if you wanted to invest in direct property. If you don’t want to invest your super in direct property, then there are superior lower-cost and simpler solutions for your superannuation.
Many prospective clients that I come a
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