Kelly Simpson* says people need to understand super stapling to ensure that they don’t get stuck to an underperforming fund.
Australia’s a good place to retire. If you’re an Australian resident, you have access to one of the world’s best practice retirement savings schemes.
There are three parts to it: compulsory superannuation, the age pension, and voluntary retirement savings.
It hasn’t always been this way.
Compulsory super was only introduced in 1992 with a 3 per cent Super Guarantee, which is the proportion of your earnings that is directed into your super fund.
The Super Guarantee has since raised to 10 per cent and is on track to reach 12 per cent in 2025.
This means that, currently, if you work for someone else, 10 per cent of your earnings must be paid into a super fund.
The super fund will manage this money for you, and try to grow it as much as possible for your retirement.
Different funds have different approaches and different success.
Not sure where your super is? Here’s how to check.
Having too many super funds can be a problem
If you’re someone who’s had lots of different jobs, you might find yourself with more than one super fund.
More than four million Australians as at 30 June 2020 had more than one super account.
Having more than one super account can mean you’re paying extra fees and spending extra time managing your money.
The ATO has estimated that multiple accounts are costing Australians $450 million in fees.
Super stapling aims to address this.
What is super stapling?
On 1 November 2021, a change in the superannuation legislation was introduced that ‘staples’ you to your super fund for your whole career.
Unless you make an active decision to change it, the super fund you’re with now is likely to be the super fund you retire with.
This applies to anybody with a super fund.
Now, if you don’t give your employer your super fund details when you start a new job, which can sometimes prompt someone to reconsider their super account, your new employer will search an ATO database and pay your super to your existing fund.
What does this mean for you?
Where you keep your super matters.
There are heaps of different super funds and they all perform differently – and some of them underperform the market, which means they return less, on average, than most of the other ones do.
When you choose a super fund, performance is an important metric to consider, but it’s not the only one.
You don’t want to get stapled to an underperforming fund.
If you first start paying super when you’re 20, and access your money at the current preservation age of 60, it has 40 years in the market to grow.
Even a 1 per cent difference in annual return makes a significant impact over that timeframe.
Here’s an example.
$20,000 sitting in a super fund for 40 years will grow to $140,800 if the fund returns 5 per cent p.a. – which means it grows an average rate of 5 per cent per year.
If the fund returns 6 per cent p.a. instead, that $20,000 will grow to $205,714.
That’s almost $65,000 more.
Note that we haven’t taken fees into account here, which will impact your returns.
If your super fund is a MySuper product and it doesn’t meet basic performance metrics, it must send you a letter in the mail to explain why, and tell you what it intends to do about it.
Even if you don’t receive this letter, it’s a good idea to regularly review your super fund’s performance.
What’s a MySuper product?
MySuper products are basic superannuation accounts with basic features and fees.
The majority of Australian workers are invested in the default product of their current fund, and MySuper is aimed at making sure this is a cost-effective option for them.
Entering the workforce for the first time?
If it’s your first time paying super, keep in mind that if you don’t choose a super fund, your employer will elect a default fund for you.
The default must be a compliant fund with a MySuper product.
MySuper products tend to have a single investment option, standard insurance, and lower fees.
They also must meet set performance requirements.
So… what now?
Your best bet is to keep an eye on your superannuation.
Know where it is, how it’s performing, and decide for yourself if you’re happy being stapled to it.
*Kelly Simpson is a contributor at Spaceship.
This article first appeared at spaceship.com.au.
