David Orford, CEO of superannuation software provider Financial Synergy, outlines the importance of taking control of your super investments – and why it can make all the difference when it comes to saving for your retirement.
Usually when we talk about superannuation savings, our primary focus is on the size and frequency of our contributions. And if we want to increase the amount of money we’ve set aside, our first reaction is often to make additional contributions.
But is that really the most effective way of boosting our retirement savings? In a projection of superannuation fund contributions, research by our actuaries revealed that in Australia “contributions” make up only 10-15% of the total pension payments expected to be received over a lifetime whilst “investment earnings” account for an incredible 85-90%. So if we want to maximise our super savings and achieve our goal of a comfortable retirement, it’s investment earnings rather than contributions, expense charges or costs of cover, that deserve our attention.
After all, our objectives should be to earn as much as we can from superannuation accumulations, just as we aim to earn as much as we can throughout our working life.
In a traditionally complex industry, consumers have long been seeking more transparency, simplicity and control when attempting to manage their investments. So it’s understandable that many Australians opt for the balanced growth option via an employer fund. But what for those of us who strive to have more control over our future?
The main alternative that many consumers have chosen has been a Self-Managed Super Fund (SMSF). Under an SMSF, the members MUST BE the trustees (with all its legal requirements and consequences) as well as carry out the investment of the assets. This is the advantage most SMSF members seek – to control their own destiny in relation to investments. They think they can achieve a better outcome than professional investment managers.
Some further benefits of saving in an SMSF include exposure to a wider range of investments, including gearing of property, and sometimes greater flexibility. In addition, when a member transitions to retirement, investments need not be sold – and any thought of paying capital gains tax on investments disappears. However where direct investments (like direct shares) can be held in a larger superannuation fund, this advantage should also be achieved.
Despite the control an SMSF offers, it can still be a complex option for consumers. Administration, accounting and auditing an SMSF can be relatively expensive, as well as time-consuming. Also as each member has to be a trustee, they need to have adequate knowledge of Superannuation legislation. Finally, SMSFs may not always have online access to all investments so in practice investment returns may not be higher than professional managers because professional managers often have better access to investments.
Although “control” might give you a nice sense of freedom, it may not do you any good in practice. Having an online trading platform and access to research might help – but you have to seek the right advice or do your own research to achieve good investment returns. So, with all that’s involved in running a Self Managed Super Fund, surely there has to be an easier way?
Well good news is on the horizon for consumers, as the government is pushing for super reforms to increase transparency and minimise costs by, for example, decreasing the need for paper forms.
There is also a growing trend for superannuation funds to offer their members access to direct investments (such as shares and term deposits) through online trading and lots of straight through processing – which reduces risk, cost and time delays and increases consumer satisfaction.
These simple and straightforward superannuation funds, which provide consumers with access to direct investments and research online – without onerous trustee responsibilities and time-costs – have started to provide real alternatives to SMSFs.