Bruce Brammall: How to sniff out the hidden cash-sapping risks in your annual superannuation statement

Annual superannuation statements are on their way. “Oh, what fun!” I hear you cry, sarcastically. If you normally don’t open them, bin without reading, or just look at your balance then “file” . . . let me tell you a little story about why you need to change that. I was contacted recently by someone, let’s call him Gary. Gary had just opened his super statement and was angry/horrified on two fronts — his super balance and his insurance premiums. Gary had sacked his financial adviser about seven years ago. Didn’t want to pay the fees any longer. But said he probably hadn’t opened a super statement for even longer than seven years. Taking responsibility Since he “took over responsibility” for his super, the actual balance has barely moved. His insurance had been given less-than-zero thought. Gary is in his late 50s. The premiums for retail insurance life and total and permanent disability cover, from about your early 50s onwards, climb exponentially. (Industry funds generally operate differently. Your costs stay the same, but your cover falls.) On average, that coincides with your needs for insurance reducing as kids age, the mortgage falls, the super balance is growing, equity in investments increases. Insert Gary. In that time, his kids had gone from mid-teens, to early 20s. His need to provide for them from an untimely earthly departure had diminished. He probably had more insurance than he needed at a time when premiums had been rising sharply, because of age. His super balance hadn’t risen over that period. It had bounced around, down in recent years, as the premiums really ramped up. Panic sets in Gary was now angry. With himself. (Lesson here about divorcing your adviser and the annual review process which will probably catch these things earlier.) Gary is in a panic. About eight years from retirement, should he move super funds? Cut his insurances? Does he still need them? Every situation is different. And what Gary needs to do will be specific to him. But if you’ve just found yourself in Gary-Land, what should be your urgent reaction? Headline numbers If you think you’ve got enough know-how, and a little bit of time, to check these things, then there are probably about half a dozen things you need to look at. Roughly, they are: balance; annual return, contributions, level of risk, fees and insurance premiums. Each needs a column on its own. But for today’s purposes, let’s get punchy. Many are interrelated and a negative answer on one doesn’t mean you’re in disaster territory. Balance: Has your balanced increased since last year? Most years it should, because of contributions and investment returns. But if investment markets have been terrible, it could fall. Returns: Your super fund will say, somewhere (if it’s bad, it might be a little bit hidden), what the return for your investment option was. It might be high or low. See “level of risk” below. Contributions: Did your super fund receive contributions of roughly 11.5 per cent (for FY25) of your salary for last financial year? If not, look deeper into whether your employer paid you the correct amount of super. Diving deeper Next would be level of risk: At its most basic, you’re trying to find out how much risk you’re taking with your investments. With your super, arguably, you want to be a bit more aggressive than what you would normally feel yourself to be because super is, even at 55, still an ultra-long term investment. When you turn on a pension at retirement, it’s designed to pay you out slowly for potentially decades. Fees: Statements will generally tell you the overall level of fees you’re paying, for the platform and/or the investment option you’ve chosen. Obviously, there is some investigation you need to do here, as to whether it’s high, average or low. Insurance: How much are you covered for? Is that level appropriate? How much is it costing? Is it reasonable? These questions are a little harder to quantify as to what’s reasonable. But spending a little time thinking about your level of cover and the premiums being paid is the absolute starting point. These are minimum questions that you need to consider. But under every question lies a lot of knowledge or base understanding that’s needed to have an idea of what’s fair, right or reasonable. If something doesn’t smell right, and you don’t have hours to research the lot, maybe it’s time to speak to an adviser? Bruce Brammall is the author of Mortgages Made Easy and is both a financial adviser and a mortgage broker. bruce@brucebrammallfinancial.com.au