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Super slackness

Peter Switzer
1 October 2009

Newspapers ran with the wrong heading this week, when they screamed that: “Super fees cost savers $14 billion a year!” The more accurate headline should have been: “Ignorance, laziness and scabbiness is costing savers more than $14 billion a year.”

(I don’t like being so mean and insulting but sometimes you have to be hard to be kind!)

I know you would need a big broadsheet to fit all of that in a headline but it’s the truth. Sure there are super funds that overcharge and under-perform and there are a stable of under-charging and outperforming funds that always top the charts in all of the newspapers we read. But I reckon millions of Australians, especially the younger ones, suffer from a DCA — a ‘don’t care attitude’.

Important asset

This is crazy as super is, probably for most of us, the most important asset we will own. For some of us it will be our home but if someone plays super properly for 30 or so years of working it should be over a $1 million by the time they retire.

The Australia Institute has done the research and tells us that excessive superannuation fees and commissions cost Aussies more than $14 billion a year, which is around half the cost of paying the age pension.

The institute says these practices, which points the finger of blame at financial planners and well-known financial institutions that create the products the advisers sell, mean it will put pressure on the future tax system as people whose super runs out will have to rely on the pension to make ends meet.

Others would turn to reverse mortgages which will mean the old “honey I’ve shrunk the kids’ inheritance” line will become more relevant down the track.

Big costs

It’s calculated that being in the wrong fund which over-charges will cost some wage earners $100,000 in retirement.

According to the Sydney Morning Herald: “Administration costs of 1.35 per cent can reduce final super fund balances by up to 27 per cent, or over $130,000 for a worker on the average wage.”

Dr David Ingles of the Institute says there has never been a proper debate on super fees and how to minimize them. That’s true because most of the Aussies who haven’t got a clue would never turn up for such a debate. Normal people do not think a debate on super is super-appealing.

Ingles says up to 16 per cent of us could be in a high-cost super fund, which is getting close to one in five super savers.

On financial planners 

And while this is important to underline, the biggest message is that the more info you can have about money, the wealthier you will be. Financial planners get bagged for selecting expensive products and some should be hauled over the coals but others use self-managed super funds to bring the costs down.

Others think laterally about their clients’ needs and come up with great money-saving and money making ideas that can result in very healthy financial outcomes. A great financial planner is just like a money coach who does the thinking, the planning and the strategy for their client.

It’s ridiculous to think of a planner as some kind of guru who can always pick the stock market right and will get big returns every year. However, they should be able to justify their charges by creating a plan that will mean their clients’ goals are met.

They should be a honest partner whose guidance you can trust. If you find a planner like that, I bet he or she will create a plan where the costs will be small compared to the returns.

Quality lasts

As the famous clothes designer, Gucci, once observed: “Quality is remembered long after the price is forgotten.”

If you’re slack with super and you can’t or won’t get the best for yourself, then seek expert help from someone you can trust but don’t ignore this really important asset.

Talking to the guys on the Vega breakfast program I suggested we take the week after the NRL grand final and before cricket starts up to get super interested in super. Tony Squires, Rebecca Wilson and Mikey Robins, the program’s hosts, thought it was a super idea or at least a super funny one! 

 

For advice you can trust, contact Switzer Financial Services.












Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.



 


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