Super Health Check
Superannuation may be one of the most important and largest assets Australians will hold in their lifetimes. However, it is often overlooked and not properly managed. A super fund requires regular attention to ensure it continues to align with your long-term financial goals. Regular reviews, often referred to as a super health check, can be helpful and can identify issues that may arise such as excessive fees, underperforming investments, incorrect employer contributions, or incorrect insurance.
In this blog post, we will discuss the importance of a super health check, and guide you through the steps you can take to ensure your super is in good shape.
1) Gather Information
The first step in conducting a super health check is to gather all relevant information about the super account. This includes details about the current balance, contributions, investment options, insurance cover and fees.
This is important as it will give a clear and detailed understanding of the account to then allow you to assess its performance and suitability. Many of us set up our super accounts when we first start working, and then forget about them, assuming everything is running ok in the background. However, without regular monitoring, you might find the account is not structured correctly to fit your needs.
How to gather this information:
Annual Statement: Most funds will send an annual statement that provides a summary of the account, including current balance, contributions, fees and, investment performance for the period.
Online: Most super funds have access to an online portal. Logging in can give up to date information.
Contact the Fund: If the above two methods are unsuccessful, another option is to contact the fund directly. They can provide the required information for the review and answer any questions.
2) Check Contact Details
When completing the initial step of gathering information it is important to check that the contact details and TFN are correct and up to date with both the super fund and ATO (Australian Tax Office).
It’s important to keep up to date contact details to ensure that you receive regular communications from the fund, such as annual statements, changes to insurance costs and fees, or updates in investment performance.
One of the biggest risks of having outdated contact details is the possibility of lost super. If your super fund cannot reach you, your account or insurance may become inactive, and then super can be transferred to the ATO as lost.
3) Review Goals
Reflecting on your financial goals is an important step in the super health check. Superannuation is a long-term investment designed to provide for retirement, so it’s essential that the super is on track to meet the retirement goals.
Factors to Consider:
Planned Retirement Age: This can be a difficult question to answer and may change as you progress through your working career. Keep in mind an age and set that as a goal to work towards with the understanding that this may change over time.
Desired Lifestyle in Retirement: Consider the type of lifestyle you want in retirement. Do you want to take regular holidays, and be able to do certain hobbies, or will your expenses be relatively modest. This will impact on how much super is required.
Anticipated Major Expenses: Are there any major upcoming expenses, such as paying off the mortgage, replacement of car or major renovations. These should be factored into your retirement planning.
Once you have a clear understanding of your goals, you can assess whether your current super balance is on track to meet them. If not, you may need to consider adjusting your strategy, reviewing the goals, and seeking professional advice.
4) Check Employer Contributions
Another important step in the super health check is reviewing the account’s transaction history to ensure that the employer is making the correct contributions.
By law, employers are required to contribute a minimum to your superannuation at specific times of the year. However, issues do happen and it’s not uncommon for contributions to be missed or underpaid.
How To Check Employer Contributions
Review Transaction History: Review the statement or log into your account and review the transaction history. Look for regular employer contributions and check that they match what you’re entitled to based on your income.
Check Pay Slips: Pay slips should indicate the amount of super your employer is contributing. Compare this with what’s being deposited into your account.
Discuss with Employer: If there is a discrepancy or missing contributions, it’s best to firstly raise this with the employer. If necessary, reach out to the ATO for further assistance.
5) Fees and Charges
The cost of running a super can be a significant factor in the super balance over time. While some fees cannot be avoided, it’s important to ensure the account is charging competitive fees.
Types of Fees to Consider
Administration Fee: Admin fees are the general costs of running your account and are paid to the super fund. These fees can be charged as a flat fee per month or as a percentage of your balance or both. Keep in mind if you have a percentage fee as your balance grows so does the fee. Each fund charges its own fee, and it’s best to compare regularly with other funds to ensure your fees are competitive.
Investment Fee: The investment fee is charged for managing the investments within the super fund. These fees are paid to the fund managers who make investment decisions on your behalf. The fees can vary widely depending on the investment strategy and asset types. Investment fees are generally a percentage-based fee calculated on your balance, again as your balance increases so does this fee.
Buy-Sell Spread: The buy-sell spread is a fee that accounts for the transaction costs when your super fund buys or sells assets. The buy-sell spread is generally a smaller percentage-based fee. This may apply when you switch investment options, contribute to the fund, or receive a super pension payment for example.
Performance Fee: A performance fee is paid to a fund manager when their investment performance exceeds certain benchmarks or targets. Not all funds or investments charge performance fees. For those that do, it’s best to assess whether the fund’s performance justifies this additional cost. Generally, these fees are charged as a percentage based on your balance in the investment.
6) Check Insurance Cover
Many super funds offer insurance cover when joining the fund, including life insurance, total and permanent disability (TPD), and income protection.
Life: Provides a lump sum payment to the beneficiary in the event of death.
TPD: Pays a lump sum if you become permanently disabled and are unable to work again.
Income Protection: Replaces a portion of income if you are unable to work due to illness or injury.
When considering the level of cover it is important to avoid being underinsured and also overinsured. By having insufficient cover, the risk is in the event of a claim you may not have sufficient cover. If you are overinsured, you may be paying for more cover than you need and can unnecessarily deplete the super balance. A regular review of the insurance cover ensures it aligns with your current needs.
Speaking to a qualified professional can help to understand the benefits and potential strategies of superannuation. Although superannuation is a long-term structure, it is never too soon to start planning for the future.
At Unified Wealth our team are highly experienced and provide goal-based advice and solutions for a range of advice strategies.
Speak to our team today.