What I learned the hard way about super: Canstar CEO reveals his top tips

For most Australians, super will be their biggest asset, apart from their home. It’s a little bit of money put away from each pay, which slowly builds up, over time, in the background. But how do you make the most of it? Canstar CEO Andrew Spicer gives his top tips.

Our super system is admired around the world. There are very few countries that have anything like our Super Guarantee, and, while it’s not perfect, we’re ranked up there with the best when it comes to national retirement income plans.

It’s currently worth around $3.5 trillion, and this massive pool of funds will help many Australians have a much better retirement. It’s also helping our economy – the lion’s share of these trillions is being invested in Australia, in things like the stock market and property. And it’s your money that’s being used to do it! It’s Australians investing in Australia.

I’m lucky to have had super my entire working life. At my first proper job, the boss of the engineering startup I had joined was a big believer in corporate super, and paid a portion of my wages into a fund well before that became compulsory in 1992. So I’ve seen my super grow over time, and learned a lot – sometimes the hard way – about how to harness its power.

In this article I’ll share my personal experiences with super, along with a few Canstar insights.

1. Harness the power of compounding

To make the most out of your super, the first and best thing you can do is realise its potential. It’s a really powerful financial tool!

For most workers, super is a compulsory investment. A portion of your salary will go into an investment account for the whole of your working life. And this compulsory investment continues to compound for decades. While you are continually topping up your account with new funds to be invested, any money you make on those investments is put back into your account to be reinvested. That’s the superpower of compounding investments like this. Plus, you’re paying less tax on both the money that goes into the fund and on the ‘investment returns’ that your fund generates.

The most amazing thing about it is that you can get a tax-free ‘allocated pension’ when you retire. For many, that makes life much more liveable, particularly as the cost of living makes the Age Pension more of a minimal safety net.

You do have the power, right now, to shape what your retirement looks like, through the choices you make around super.

2. Get signed up

Joining or swapping to a new super fund is very easy these days. There are a couple of ways to go about it.

For many people, if you’ve never been paid super before and you’re over 18, you’ll first join a fund when you start work. This is compulsory (if you’re eligible to be paid super). To sign up, you’ll need to fill out the right paperwork, called the ‘Superannuation standard choice form’. Your employer will most likely give you this with most of the details filled out, but the form is also available from the myGov app’s ATO Online portal.

This form gives you a few choices. It lets you nominate your existing super account (if you have one), or you can choose to go with your employer’s ‘default’ provider, in which case an account will be opened on your behalf. That account will be (by law) within that fund’s ‘MySuper’ product – a balanced, no-frills and cost-effective product that has to comply with various rules around investment choice and fees. (There’s also the choice of nominating my private self-managed super fund or SMSF.)

While you do have the option of picking your own fund, if you choose not to, don’t worry, it’s easy to change later. Although, don’t leave it too long to work out what you want to do. If you are stuck in a dud ‘default’ fund and switch employers, that super account is ‘stapled’ to you. It follows you to your next gig, and will be the account your new employer is compelled (by law) to use. Stapling is designed to cut paperwork as well as the amount of super accounts that are created – and forgotten about – when people change jobs. But staying in a poor performing fund could really clip your wings financially in the long run.

The other way to join up is to first open a super account with a fund of your choice. You can usually do that online via the fund’s website. Then, you use the ‘standard choice’ form to let your employer know the details. (This form is also used when you switch funds.)

Whichever way you decide to go, the biggest tip I can give here is to do your research. Learn about the super system, how it works, what your needs are and what a good performing fund looks like.

3. Get involved

Once you are part of the super system, dive in! Take a look around. See how it works.

Go to your fund’s website. Get a log in so you can look at your personal super account, which should tell you your balance, and check your details. If you’ve gone with your employer’s ‘default’ fund, find its ‘MySuper Dashboard’. That will tell you what the fees are, the level of investment risk and how that product is performing.

Now, this is the moment you can have more of a say over how your money is invested. You can choose to stay with the type of product that you currently have, and its level of investment risk. Or, after viewing the performance of other investment types offered by the fund, and things like fees, you may decide to change it up. Either way, it’s important to weigh up the options against your circumstances and what you think you’ll need in the future. (And it’s important to remember that just because an investment has done well in the past, it doesn’t necessarily mean it will continue to do so.)

4. Tick the right investment box

I think the biggest single decision you can make here is which ‘investment option’ you should choose. It can make a big difference, because, when you are young, super is a long play.

As a young engineer, when I didn’t know very much about investing, I opted for a lower risk, lower return ‘capital guaranteed’ option. This was back in the late-’80s and early ’90s, in very different economic times, when we’d just had a stock market crash and that awful ‘recession we had to have’. But, after four years, I moved to a ‘growth’ option. I had learned more about investing and realised I had decades to ride the ups and inevitable downs of the market. I decided that my fund’s ‘growth’ option (more shares and property) was likely to do better over the long term than something more conservative. I reckon that four years in that lower risk option, all those years ago, has cost me $100k!

But, as you age, and things change – how much you earn, the economy, who you need to provide for, when you plan to retire – you’ll probably want to adjust your investment options.

5. Fees vs performance: Is the mix right?

You can compare super funds on Canstar. On our tables, you’ll see that there are Star Ratings next to the individual products. Our research experts look at things like investment performance, fees and product features, and how they stack up for different groups of consumers. This can be a handy guide when you’re looking to compare different products.

After looking at the Star Ratings, I look at the fees. And, what I get for those fees.

This is really important to think about. For some funds, the biggest determinant of performance over time is fees. This can be particularly true for funds that follow share market ‘indices’ such as the ASX200. Just as you are paying in money to the fund regularly and building the balance up, fees are being taken out regularly, too, which decreases the balance. So I like to look for low fees. And I take a look at the services that are offered for those fees, too.

And when it comes to performance, I want at least average performance. I believe it must be very hard for funds to maintain above-average performance. It’s much easier to be consistently poor. It’s like sporting teams: To win you’ve got to get everything right. But to lose, it only takes one thing to go wrong!

6. Explore consolidation

Because fees are so important to the long-term growth of your super, it might be worthwhile to look into consolidating your super into one fund if you haven’t already done so.

If you’re someone who has done a lot of job switching and gig economy roles, there’s a chance you might have multiple super accounts in your name. If you do, you’ll be paying fees to keep those accounts, which could be eroding your balance. Thankfully, changes made a few years ago to the super system reunited a lot of people with their ‘lost’ super accounts. (But, there’s still $16 billion worth of ‘lost’ super, across nearly 7 million accounts, either held by the ATO or by funds.) You can view accounts that have been matched to your details via the MyGov app’s ATO Online page.

If you decide to roll your money into one account, you could shore up balance erosion from fees. One fund, one set of fees. But it’s very important to weigh up the pros and cons. In the end you may decide it’s in your interest to keep some or all your multiple accounts because of the benefits they provide.

It can be a complex equation, and you may like to get some professional advice.

If you do decide to switch, most funds will find any extra accounts and consolidate your funds for you, via their online member portal. You can also go through myGov’s ATO Online service.

7. Learn more about life insurance in super

Most super funds automatically give you some life insurance in your super, which can be helpful.

However, most people underestimate how much life insurance they really need, particularly if they have a mortgage and young children.

You can apply to get more insurance, or go direct to a life insurer. You can compare life insurance with Canstar, too.

One of my toughest jobs was working as Trustee of a super company making decisions about hardship cases. Loss of the main breadwinner in a family is heartbreaking. It’s important to make sure you’re prepared for the unexpected.

8. If you can, top up your salary deductions

If you’re lucky enough to be in a financial position to do so, you can ask your payroll people to put more of your salary into super. This is called ‘salary sacrificing’. Because it comes out of your pre-tax pay, you’ll typically pay less income tax doing this.

But there’s a cap on how much pre-tax payments can go into your super a year ($27.5k, including the contributions your employer makes). And generally you wouldn’t do this until you’ve saved and bought other investments and a house. It’s more common for people to do this in their 40s and 50s, and I’ll talk more about preparing for retirement in a future article.

9. Consider getting financial advice

There’s a lot you can learn about money and investing through self education and trial and error. But, just like on the rugby field, even the star fly-half sometimes needs coaching.

Giving financial advice is getting more difficult in Australia. Laws designed to protect consumers have made advice more expensive, and firms like Canstar can’t give simple personal advice online.

However, there are a few places you could go for financial coaching, and the trick is to find the right type of advice and advisor for your needs.

For example, many super funds offer basic financial advice and you can call them. This is usually a free service.

There are also financial counsellors, offered through selected government and not-for-profit community organisations, but they only help those people who are in financial trouble. Again, this is a free service.

Then there are financial planners and advisers, who must be licensed by the Australian Securities and Investments Commission (ASIC) or work for an organisation that’s licensed. This is a fee-for-service arrangement, with costs depending on things such as the type of advice you want and the complexity of your financial situation.

10. Stay active and track your progress

Like any financial product, super is just a tool. True, it can seem like it’s a very complex one, with lots of moving parts. But, as with any tool, to get the most out of it, not only do you need to learn how to use it properly, you also need to know how to maintain it. A big part of that is keeping an eye on it, making sure that it’s working for you, in the way you need it to.

Log into your account now and then and track your progress. Do this at least twice a year. Keep an eye on your statements, too, to make sure you’re getting the right amount deposited into your actual account. Check your payslip as well. The Super Guarantee has just gone up from 10.5% to 11%, as of 1 July, and will go up again for the next two years, to reach 12%. This little bit extra each pay could really add up over time, and boost your super balance.

And, it’s also a good idea to benchmark your super balance against your age from time to time. This is an estimate of how much you should have in your super account at certain ages if you want to retire comfortably. It turns out that there’s a big gap between what most people have in their accounts, and what they will actually need in retirement. You can read more about what that means in this article by Canstar’s Michael Lund.

It’s your money and watching it grow will help you build financial awareness and skills!