Ignorance and apathy scramble nest egg

AUSTRALIANS are losing millions of dollars on super each year out of sheer apathy, according to the research company Canstar Cannex.

By InvestSMART · 3 Sep 2011

By InvestSMART ·
3 Sep 2011

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AUSTRALIANS are losing millions of dollars on super each year out of sheer apathy, according to the research company Canstar Cannex.

It says fees on multiple accounts, a tick-the-box attitude to super by younger workers and ignorance of how much super is costing and the potential benefits are all eating into future retirement benefits.

While the super industry has made some inroads into getting consumers to consolidate their super accounts, the head of wealth management at Canstar Cannex, Steve Mitchell, said paying duplicate fees was still a big issue for consumers, particularly for younger people who have moved from job to job.

"If you take a young person who has had three part-time jobs while they're going to uni and who then goes into a full-time job they'll probably have three or four super accounts," he said.

"No one says: 'This is how to work out a plan for your super and which fund is best.' They just go into the employer's default fund."

Canstar Cannex has rated 81 super funds that are publicly available without the need to belong to an association, work for a particular employer or pay for financial advice and given 12 of those funds a five-star rating.

Funds have been rated for different profiles of consumers ranging from younger people with low account balances who basically just want to get a good deal at low cost, to consumers nearing retirement who place higher importance on features such as the ability to take out a transition to retirement pension and to accept spouse contributions.

Mr Mitchell said funds were rated on their pricing and features including insurance cover and costs. Investment performance was not a key criterion, though funds were marked down if they had been in the bottom quartile of funds over the past one-, three- and five-year periods.

The five-star performers included funds from the industry and the retail fund sectors, though Mr Mitchell said retail funds were more likely to be attractive to older consumers who wanted advice and features than to younger investors.

While unnecessary costs could be a problem for all investors, he said they were particularly damaging to people with low super balances. He said someone receiving $40 in compulsory super each month could lose 10 per cent of that by paying a relatively modest $4 monthly membership fee.

If they had several accounts, much of their savings could be eaten away by fees and compulsory insurance premiums.

While proposed government reforms are intended to make super simpler and cheaper for apathetic consumers, Mr Mitchell said at the very least investors needed to ask basic questions such as whether they were in the right fund for their needs and getting value for money.

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Frequently Asked Questions about this Article…

Why are Australians losing millions from their superannuation each year?

Research from Canstar Cannex says apathy and ignorance are costing Australians millions in super. Common causes include paying fees on multiple super accounts, a ‘tick-the-box’ attitude where workers stay in their employer’s default fund, and a lack of awareness about how fees and insurance premiums erode long‑term retirement savings.

What are duplicate super fees and how do they impact my retirement savings?

Duplicate super fees happen when you have more than one super account and pay membership fees or insurance premiums across each account. That can significantly reduce your balance over time — for example, someone getting $40 a month in compulsory super could lose about 10% of that by paying a $4 monthly membership fee.

How can I tell if I’m in the right super fund and getting value for money?

Canstar Cannex recommends asking basic questions such as whether your current fund suits your needs, if the pricing and insurance are competitive, and whether you could consolidate duplicate accounts. Checking fund features and costs — not just the default employer choice — helps you decide if you’re getting value for money.

What did Canstar Cannex’s super fund ratings show about available funds?

Canstar Cannex rated 81 publicly available super funds and gave 12 of them a five‑star rating. Ratings were based mainly on pricing and features (including insurance), and funds were marked down if they’d been in the bottom quartile for investment returns over one, three and five years.

Should I choose a retail or industry super fund?

The five‑star performers included both industry and retail funds. The research notes retail funds can be more attractive to older consumers who want advice and extra features, while younger investors often prioritise low cost and simplicity. Your choice should reflect your age, balance and whether you value advice or lower fees.

Why are super fees especially damaging for people with low balances or younger workers?

People with low super balances can see a large percentage of their contributions eaten by modest fees and compulsory insurance premiums. Younger workers who change jobs often end up with multiple accounts and duplicate fees, which compounds the problem and undermines long‑term retirement savings.

What fund features did Canstar Cannex consider when rating super funds?

Canstar Cannex rated funds on pricing and features such as insurance cover, costs, and features important to those nearing retirement (for example the ability to take a transition‑to‑retirement pension and to accept spouse contributions). Investment performance was not the primary criterion but poor performers were penalised.

Will proposed government reforms make superannuation simpler and cheaper for apathetic consumers?

The article says proposed government reforms are intended to make super simpler and cheaper for apathetic consumers. Regardless of reforms, Canstar Cannex’s advice is that investors should at least check whether they’re in the right fund for their needs and getting value for money.