Superannuation Myths:

There are so many myths about superannuation, but we wanted to clear up a few of the more common ones that we get.

Myth – You will automatically have enough money to retire on if you have worked all of your life
This is not true in every case because superannuation is payable only on your base wage at the government guaranteed rate of 9% which if that is all you put into your super whilst working will not pay out your mortgage AND provide money to maintain your lifestyle.

For example if you work from age 20 until retirement in a state government department that pays 17.5% instead of the basic 9% by the time you retire at age 60  - 65 your super will be enough to maintain your current lifestyle for between 15 – 25 years.

Myth - If I have extra money I should make voluntary contributions to my superannuation.
The worth of $1 today, will be different to the worth of $1 in 10 to 20 years time.  In the majority of situations putting your money in a bank has a greater return. Instead of adding $1 dollar to your fortnightly voluntary contribution you need to make that $1 work the best for you.

For example a major leading industry super fund used by the majority of State Government employee’s average return over the past 10 years is only between 4-5%, whereas some banks offer much more competitive rates or you could even use the money to purchase an investment property.

Myth - Industry Super funds do not charge a commission
You need to ask yourself if they do not charge a commission then how do they make money because it is highly unlikely that they would all work for nothing.  You need to realise that someone has to pay for all the advertising, lights in their large buildings, rent and sales people to visit your workplace.

Instead they charge an “admin fee” that is very well hidden because it comes off the top of the performance of your fund and usually ranges from 2-3% of your investments, which results in a diminished growth of your savings. 

Financial advisers generally only charge 1-1.5% fee and wouldn’t you prefer to know upfront what any fee’s will be.

Myth – My pre-tax contributions to my superannuation are 100% tax free
This is false as there is a 15% ‘contributions tax’ on EVERY pre-tax voluntary/employee contribution so if you’re applicable tax rate is 15% you are losing money. 

There are methods and strategies to avoid paying as much tax, but you need to speak to a professional to find out how as it is not automatically set up.

Myth – Industry super funds performed better in the ‘global financial crises’ than Commercial funds
Industry funds give you conservative – balanced – high growth as far as choice goes. Commercial super funds FAA recommends are highly tailored/personalised and the client can be as involved as they wish right down to picking the funds they invest in or simple giving us there preference for us to research funds.

Myth – I should choose the fund that performed the best last year
You need to do your research to find out the best performing fund over a much lengthier period of time and not simply one year as your money will be in there for an extended period of time.  You also need to consider the external financial environment and put some context around the historical data. 

You need to determine how long you want the money to be in the fund before you will want access to it and what type of investor you are; risky or conservative. A professional is able to help you compare the advantages and disadvantage of different superannuation funds to find the one that best suits you.

If you would like to know more please contact us for a free no obligation appointment.

Prepared by John Hehir Financial Advisers Australia (FAA)