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Super refresh: The factors to consider beyond annual returns

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It has never been easier to check the financial returns that your super fund is delivering each year.

Last year the Australian Taxation Office published a new comparison tool listing the performance and fees of MySuper default funds that members can access via their online MyGov accounts.

It’s an important exercise that could save members up to hundreds of thousands of dollars by retirement.

But it’s far from the only factor that you should consider when tuning up your super.

Your age, investment time frame and financial goals all play a major role in determining your best superannuation strategy.

“I go back to the analogy of buying a car. You wouldn’t just pick the fastest car you could find,” said Steps Financial principal adviser Antoinette Mullins.

“You would look at its safety record and how it performs in different conditions, and whether it meets the needs of your particular age group or family type.”

When to be aggressive

In your younger years, when you are building up your balance, it makes sense to adopt a more aggressive stance as you will have time to recover from market downturns.

What does this mean? It means choosing an asset allocation that is more heavily weighted to riskier assets such as shares and property – assets that are more likely to deliver higher returns over time.

As the chart below shows, funds where members have chosen an aggressive allocation can perform better than the default MySuper options shown above, which are more conservative in makeup.

So age is a major factor in choosing the right fund. But it’s far from the only one, according to Mercer senior partner David Knox.

“As you approach retirement, you need to be thinking about whether you will need your retirement money immediately to pay off debt or a mortgage, or whether you will keep it invested for the longer term,” Mr Knox said.

This is a crucial issue, because if you plan on using a significant chunk of super to pay off your debt when you retire, you need to have confidence in the money being there when you need it.

In other words, you will need to invest less money in risky growth-assets such as shares and property.

“If you plan to pay off a mortgage, you actually need to think about de-risking and getting out of equities (shares), because you don’t want the markets to suddenly drop just as you’re about to retire,” Mr Knox said.

But if you do not plan to use a lump sum upon retirement, and instead plan to spread out your spending throughout your retirement, then a more aggressive approach would be more appropriate.

“If you’re in for the long term, you should have, in my view, an exposure to a broad range of assets including equities (shares) and other growth options,” Mr Knox said.

Consistency matters

That doesn’t necessarily mean high-growth allocations are appropriate all through your retirement, though.

“As you move into your 60s, I would say the key elements I tell my clients to look at is consistent performance,” Ms Mullins said.

That means choosing allocations that will deliver growth along with stability.

This could mean investing in a traditional balanced or default option that typically invests between 60 and 80 per cent of your funds in growth assets.

But make sure to look on your fund’s website to work out exactly what goes into their balanced and default options. They vary quite substantially.

“A lot of funds, particularly industry funds, are not all that clear about the details of what their alternative assets are,” Ms Mullins said.

“It’s all well and good to know the allocation between growth and defensive assets, but it’s vital to know what those assets are and what they mean to your bottom line.”

Review your insurance

Another important issue to understand is the insurance your fund offers.

“You need to know the quality and cost of insurance and how different occupations are treated,” Ms Mullins said.

This is particularly true if you are a blue-collar worker, as some funds charge higher premiums and offer more restrictive insurance cover to manual workers.

This means you need to find out what cover your fund can deliver and whether this meets your needs.

“Knowing what your super fund’s views are on insurances for your occupation, age, demographic and even gender is really important,” Ms Mullins said.

She said checking your insurer’s claims history is also important and can be done either online or by calling your fund directly.

“Why would you pay premiums for many years only to be denied a claim when you really need it?”

The New Daily is owned by Industry Super Holdings

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