The federal government’s recent decision to freeze increases in employer-paid superannuation contributions puts more of an onus on workers to look at ways to grow their retirement nest egg.
Under a bill passed in the Senate earlier this month, employer Superannuation Guarantee (SG) contributions will remain at 9.5% of a worker’s base wage or salary, rising to 10% from July 2021 and then climbing gradually to 12% by July 2025. The bill has generated considerable debate as the previous Labor government had flagged employer’s SG payments to rise to 12% by mid-2019.
While this change may not directly impact the cash in your hip pocket today, Industry Super Australia (the body representing industry super funds) estimates that for an average income earner, aged 25, the delay in the SG increase will cost them around $100,000 in retirement savings over a working life.
The government has responded by pointing out that we are all free to make additional super contributions of our own. That may be true but a recent report on superannuation by the Financial Services Council and ING DIRECT found the majority of working Australians (59%) have never made a voluntary contribution to their super. While disappointing, it’s not entirely surprising. For families juggling regular bills, school costs, a home loan and other financial commitments, finding a bit of extra cash to tip into their superannuation can be a stretch.
However, there are simple ways to grow your super without forking out additional cash. A key one is to pay lower fund fees. Take a look at your most recent super account statement or contact your fund directly and ask about the types of fees you are paying and what they’re worth. Then compare this to other funds.
Over the course of a working life super fund fees can have a significant impact on your accumulated retirement savings. If you’re not convinced, take a look at the government’s MoneySmart website (www.moneysmart.gov.au). It features an online calculator showing the long term impact of fees on your nest egg. If you think you could be paying too much in fees, it may be worth switching to a cheaper option.
Your choice of investment strategy will also shape the growth of your super over time. The same report I mentioned earlier found almost one in three people aren’t aware that we are free to nominate the underlying investment strategy for our super. Moreover, 40% of fund members have never taken advantage of this option.
Selecting a growth or balanced strategy for your super means more of your nest egg will be invested in assets like shares that historically, have delivered higher long term returns than conservative choices like cash or fixed term deposits. Yes, share values can and do fall from time to time, but over the course of a working life, it’s a fair bet that values will not only recover but go on to climb substantially higher and this means more money in your super by the time you retire.
If you are comparing returns between funds, bear in mind that superannuation is a very long term investment designed to help you save for retirement. That means the best basis for comparing returns is to look at longer term results for five year, or preferably longer, periods.