Has superannuation failed us?

For many older Australians, superannuation is a relatively new concept, having only been available to the masses since the mid-1980’s. Although ‘award based’ superannuation first appeared in 1985, the more formal compulsory superannuation guarantee system was introduced in 1992.

Before becoming compulsory, employer sponsored superannuation was pretty much optional. Certainly, public sector employees often enjoyed very attractive super and many larger companies provided super for employees, but many of the schemes from that time required employees to also contribute a part of their salary. This element of ‘employee participation’ was not continued into the compulsory system – often to the detriment of employees.

I hold the firm view that for superannuation to provide a meaningful contribution to personal retirement savings, the contribution rates need to be significantly higher than the present 9½% superannuation guarantee rate. My own ‘back of the envelope’ calculations suggest the figure needs to be double that – at around 18% – for an entire working life if today’s working Australians are to have any chance of being able to enjoy a comfortable lifestyle in retirement.

It is currently estimated that a single person looking for a comfortable retirement lifestyle will need to have around $540,000 of super (or other investable money). This is on top of any age pension they may be eligible to receive. Incidentally, a couple will need a lump sum of around $640,000.

If we take a single person, aged 24, on a salary of $60,000 per annum, who works until they turn 67, superannuation guarantee contributions, plus investment earnings, will allow them to accumulate approximately $275,000 of superannuation savings (in 2017 dollars). This is about half of what they will need to provide for a comfortable retirement!

However, if they contributed a further 10% of their salary to super for their entire working life, they will have saved approximately $520,000 in super – and they will be much closer to being able to afford their desired retirement lifestyle.

These calculations have been obtained using the calculator available on the Government’s Moneysmart website:  Moneysmart | Retirement Planner

Retirement planning is serious business, irrespective of how old we may be.

It is not something that should be thought of on the eve of retirement. The earlier we start, the better our prospects of being able to afford the retirement lifestyle we have always dreamed of.

So, what can we do to maximise our retirement nest-egg?

  1. Save more – divert even a small portion of salary into super on top of your employer’s compulsory contributions
  2. Understand how our super is invested – the younger we are, the more risks we can afford to take in order to maximise investment returns – don’t just be content to stick with our super fund’s default investment option – as most Australians do!
  3. Ask what fees our super fund charges – superannuation fund fees have been coming down over recent years, however, the level of fees our fund pays can have a significant impact on the level of our savings. Even an extra fee of 1% per annum can result in tens of thousands of dollars of lost super over a working life.
  4. Does our fund include insurance? If so, ensure the level and type of insurance is appropriate for our circumstances. Don’t be paying for insurance we don’t need! And, if our insurance is held through super, consider making additional contributions to cover the insurance premiums. That way we will minimise the erosion of our accumulated savings. And remember, personal contributions made to a superannuation fund are now tax deductible for most people.
  5. Find any lost super – there is billions of dollars in lost super. If we have changed jobs or changed addresses in the past, we may have lost super. It is ours and the Government would love for us, and our lost super to be reunited. Consolidate multiple superannuation funds into one, after checking the insurance cover. Consolidating our super into one account may save on the fees we pay.
  6. Remain informed – take an interest in our super – where it is invested, the fees we are paying, and how it is growing. Our super is key to a comfortable retirement.

 

For many, the constant changes to super are disconcerting. Is it little wonder why we lose confidence in the system and become disengaged.

However, the Australian superannuation system is acclaimed as being one of the best in the world. Spend some time becoming familiar with your super and it will be there for you when you need it.

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