Don't take the lazy option, take charge of your fund, writes Nicole Pedersen-McKinnon.
If you're one of the lucky ones, the super statement that will shortly land in your letter box will show a tiny positive. The median balanced fund posted a gain of 0.4 per cent in the past financial year, says research house SuperRatings.
OK that's not great, but it's the third consecutive year of gains (this time by the skin of the teeth) and far preferable to the 6.4 per cent and 12.9 per cent losses on the credit crack-up. It takes median returns for the five-year period since then to minus 0.2 per cent.
Of course, your personal statement may tell a different story, for better or worse. A survey by CoreData last week found just two in five Aussies are expecting a figure with a plus in front of it.
Which is why you shouldn't be wedded to either your fund or your strategy. Here's a checklist to make sure your retirement savings are on track.
CHECK YOUR FUND TYPE
If you didn't actively choose your investment split, you'll have a balanced fund as above. As many as 80 per cent of us do.
That means, on SuperRatings definitions, about 60 per cent to 76 per cent of your money is in growth assets such as shares and property. The rest will be invested more defensively in fixed interest - bonds - and cash.
Now there's a lot of talk that Australians have too many shares and not enough bonds, and so are too exposed to equity market fluctuations.
But the appropriate asset mix does not come down to any blanket rules but to your own circumstances: your age, your risk appetite. Broadly, the older and more cautious you are, the less risk you can afford to take, so a larger defensive holding might be appropriate.
However, there's another big consideration: timing. Investors fleeing to "safety" have pushed sharemarkets far below their average value and spurred Australian bond prices to an all-time high.
In other words, dump the former for the latter today and you'll be locking in a loss in favour of an over-inflated alternative.
A recent study by Russell Investments found Aussie equities and residential property have still returned more to investors than cash and fixed interest over the past 10 and 20 years. More importantly, the asset manager forecast the return from bonds over the next 10 years will be even lower.
If your asset allocation is wrong for your needs, fix it slowly - a portion of your fund at a time.
CHECK YOUR FUND MANAGER
CoreData's research shows 57 per cent of us will stick with our super manager even if their performance falls short of our expectations, which speaks more of apathy than strategy.
While slavishly switching to last year's top fund has been proven time and again to lead to lousy longer-term performance - van Eyk Research is the latest to confirm first-rate performance usually only lasts a couple of years - sticking with a perennial underperformer is a mistake, too.
What you want is consistency. A fund that has delivered decent after-tax returns across different time periods in different market conditions. Find the top-rated funds on superratings.com.au.
CHECK YOUR ENTITLEMENTS
You may have missed a massive change on July 1: super effectively became tax free for people earning less than $37,000. Even for everyone else, though, you (mostly) pay only 15 per cent on your contributions and 15 per cent on investment earnings. This makes it the best way to invest tax-effectively.
As such, the government has curbed how much we are allowed to put in and imposed big penalties if you go over. But there are still giveaways of which to take advantage.
Under the co-contribution scheme, if you earn less than $46,920, meet a "work" test and can find $1000 after tax to pay into super, the government will kick in a bonus up to $500 (down from $1000 last year, but still).
Make a $3000 after-tax super contribution for your low-earning spouse and you can also get a tax offset of $540. Are you missing out?
CHECK YOUR PROJECTED RESULT
Far more men know their super balance to the nearest $1000, says CoreData, than do women - 35 per cent versus 19 per cent.
Go to ASIC's super calculator at moneysmart.gov.au and input your balance, contributions and desired time until retirement to see how much (or little) money you might have. And play around with the investment returns and fees while you're there to get an idea of just how much difference a smarter super strategy could make to your life.
Nicole is the editor of afrsmartinvestor.com.
Follow her on Twitter @NicolePedMcK.
Frequently Asked Questions about this Article…
What did balanced super funds return in the latest financial year?
According to research house SuperRatings, the median balanced super fund returned about 0.4% in the past financial year. It was the third consecutive year of small positive returns, although the five‑year median return since the credit crunch sits slightly negative at around −0.2%.
What is a 'balanced fund' and how much of my super is in growth assets?
A balanced fund (the default for many members) typically holds a mix of growth and defensive assets. SuperRatings defines balanced funds as having roughly 60%–76% of money in growth assets like shares and property, with the remainder invested more defensively in fixed interest (bonds) and cash.
Should I shift my super from shares into bonds now to reduce risk?
Timing matters. The article notes that a recent flight to 'safety' pushed share prices well below average while driving Australian bond prices to all‑time highs. Switching from shares into bonds right now could lock in losses on equities in exchange for an over‑inflated bond position. Instead, consider your personal circumstances (age, risk appetite) and, if you need to change allocation, do it gradually — a portion of your fund at a time.
How do I choose or check my super fund manager for consistent performance?
Look for consistency across different time periods and market conditions rather than chasing last year’s top performer. The article warns that top‑performing funds often only stay top for a couple of years and that sticking with a perennial underperformer is also a mistake. Use ratings and research (for example, SuperRatings) to compare after‑tax returns and consistency when checking your fund manager.
Have there been tax changes to super I should know about?
Yes. From the change noted in the article, super is effectively tax free for people earning less than $37,000. For most others, contributions and investment earnings are generally taxed at around 15%. The government has also tightened contribution caps and introduced penalties for exceeding them.
What is the government co‑contribution and spouse tax offset for super?
Under the co‑contribution scheme described, if you earn less than $46,920, meet the work test and contribute $1,000 after tax into super, the government may add a bonus of up to $500 (down from $1,000 previously). Additionally, making a $3,000 after‑tax super contribution for a low‑earning spouse can qualify you for a tax offset of $540.
How can I project my future super balance and see if I'm on track for retirement?
Use ASIC’s super calculator on moneysmart.gov.au to input your current balance, contributions and retirement timeline. You can model different investment returns and fees to see how they affect your projected balance and to explore how a smarter super strategy could change your outcome.
What practical steps should everyday investors take after getting their super statement?
Don’t be wedded to a single fund or strategy—review your fund type (many are in balanced default funds), check your fund manager’s consistency, confirm you’re claiming eligible entitlements (co‑contribution, spouse offsets), and use the ASIC super calculator to test projections. If you need to change your asset allocation, do it gradually and keep your personal circumstances (age and risk appetite) in mind.
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