If you are one of those people who have never reviewed your work superannuation scheme it could be well worth doing so. There may be room for improvement with the investments or the insurance cover included.
Recently a lady visited our office asking us to check if her super fund was set up ideally. On reviewing the default insurance cover in the account it was clear she was paying for insurance on an income of twice what she was actually earning.
Under income insurance rules you can only ever be paid seventy-five per cent of your actual income, to ensure that sick people have an incentive to return to work when they recover. You can pay for as much income insurance as you like but you may never get paid that benefit.
If you pay for more than three-quarters of your actual income you are wasting your money because you can never be paid that greater benefit. This person was able to greatly reduce the insurance premiums her super is paying and thereby preserve more of it.
Previously a client came in who was paying for three income insurance policies, one he had responsibly taken personally and two he didn't know he had in two of his super funds. No point in paying for three if you can only ever be paid by one!
Life and disability insurance can also be duplicated with multiple super funds so members pay for more cover than they need. Conversely, sometimes based on their circumstances (for example large mortgage, young children), people really should have additional cover.
People sometimes ask financial advisers why an old super fund they have isn't earning as much as their current work super account, and what to do about it. Inspection of the underperforming fund often shows it is invested cautiously, mainly in cash and fixed interest.
The member may say "Oh yes, I remember I switched it to cash when the GFC came along in 2009". If it has been in cash for the last eleven years, no wonder it hasn't earned much. The problem isn't the fund, it's the option the member chose to invest in.
Super funds do have investment options and everyone should take the time to learn about them, get advice, and make informed choices. This is especially so now, with interest rates at ultra-lows.
Even a diversified fund with two thirds in growth areas and one third in defensive assets now has one third of its money earning next to nothing. Is the member happy with that? Maybe a more growth style option would be better, especially if it is a long time until retirement.
Everyone should make the time to carefully review their super and ensure it is ideally structured for their needs.
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