The superannuation conversation we need to have

The Association of Superannuation Funds of Australia (ASFA) says to live a comfortable retirement at age 67, a couple need a superannuation balance of $690,000 and a single needs a superannuation balance of $595,000. Both super account balances assume you own your home and are relatively healthy. The reality though for average Australians is that despite the growth in superannuation guarantee contributions to 10.5 per cent of wages, is the promise of superannuation delivering what it’s meant to? Sadly, it’s not.

This has been recently reconfirmed by ASFA which reported on the average and median superannuation balances of males and females across age all age ranges. As an example, between the ages of 18–24, the average male balance is $8,072 and the female average is $6,994. Yet between the ages of 50 and 54, the average account balance of a male is $214,795 while the average female balance is $157,124. There’s also a substantial difference of $57,794 between the genders. And when we compare the average reality with what constitutes a comfortable retirement at retirement age, both balances are still a long way from ASFA’s single and couples’ targets.

For a while now, it has appeared to me that clients are feeling let down by their superannuation funds after many reoccurring conversations with first time clients. Comments like “I heard about catch-up contributions and when I rang my superfund the person didn’t know anything about it” and “I read it could be beneficial to split contributions with my partner before retirement, but when I spoke to my fund, the person I talked to wasn’t able to tell me much about it”. And the most reoccurring client comment of all is “I wish I had known about that 10 years ago”, accompanied by a look of regret from missed opportunities. From my own experience, clients aren’t getting the information they need from their super providers.

I also went and looked at a few funds online to see what they were telling members about their superannuation options. I found beyond transfer in campaigns, salary sacrificing and sometimes lost super call-out, there wasn’t much depth there. I also found that there was a distinct lack of information for new super account holders other than costs and generic investment options.

With thousands of young Australians joining the workforce every year, there’s a lot of people who are missing out on the benefits they might otherwise have if they were informed and encouraged to engage with this long-term savings vehicle. I was always brought up to hate waste, and I see this as a wasted opportunity. It’s like giving the keys to a car to a young person but not actually worrying if they know how to drive it. Are superfunds letting their members down when it comes to engaging and educating them to make the most of their super? Perhaps the answer for some of them is yes, they are.

If super funds aren’t going to have these conversations with their members, then who is? I see it as the responsibility of our profession, we’re the next line of defence in helping super fund holders understand their options when it comes to making the most of their retirement options. If super funds won’t educate their members, then we as an advice profession should — from their first superannuation account, right through to their retirement and beyond. Like many financial planners, I just wish some of my clients had come to seek advice sooner.

There’s a range of super strategies we should consider with every client:

• The super vehicle strategy
• The consolidation strategy
• The contribution strategies
• The contribution catch-up strategies
• The super splitting strategy
• The spouse contribution strategy
• The government co-contribution strategy
• The re-contribution strategy
• The appropriate super fees strategy
• The appropriate tax in super strategy
• The downsizing contribution strategy
• The superannuation investment strategies
• The super estate planning strategies

And that strategy list doesn’t even begin to cover what happens at retirement.

I strongly encourage my peers to not fall into the trap of assuming people aren’t interested in their super until they are five years or less away from retirement.

Very shortly and in the coming years, the superannuation guarantee will be rising again. From 1 July 2023 to 30 June 2023, it will increase to 11 per cent. From 1 July 2024 it will rise to 11.5 per cent and from 1 July 2025, it will rise to 12 per cent. These rises are important to help Australians live with more dignity and comfort in retirement, but without some inherent changes to the way we educate Australians about their super, the gap is unlikely to close.

Luke Smith, licensed Australian financial planner and author