From greenwashing to the gender gap, what’s your super up to?
UQ Mythbusters
You’ve probably thought that you’re too young to think about superannuation. Or that as long as your employer is making the mandatory contributions, you’re set for a worry-free retirement.
Well, think again. These are just a few of the common misconceptions that can easily force people to become disinterested or even scared to educate themselves about their superannuation funds.
Dr Natalie Peng
Dr Natalie Peng
Contact sat down with superannuation researcher Dr Natalie Peng from the UQ Business School to bust some of the most common myths about superannuation and why you should be ‘super’ savvy, no matter what stage of life you’re at.
What, in your view, is the biggest myth around superannuation in Australia?
A prevalent misconception is the notion that simply making mandatory employer contributions throughout one's career guarantees a worry-free retirement.
With the escalating cost of living and extended life expectancy, relying on a 'set and forget' approach falls short as a viable strategy for managing one’s superannuation, particularly for those with modest super balances and intermittent career breaks.
When was the last time you checked your super account? How is your super fund performing against others? Do you possess multiple super accounts, each charging separate fees? Can you realistically afford your envisioned retirement lifestyle?
To dispel this myth, many Australians may need to actively participate in financial planning, contribute additional funds, and routinely assess their superannuation tactics to ensure they're on course for a comfortable retirement.
Should we all be making voluntary contributions on top of employer contributions?
Making additional voluntary contributions to super can serve as a highly tax-effective strategy to enhance your retirement savings down the line.
Superannuation is taxed at a rate of 15%, which is typically lower than the personal tax rates of most workers. This can result in additional tax savings ranging from 20% to 32% for employees with annual salaries between $45,000 and $250,000. Given the current market conditions, it's challenging to find investments with guaranteed annual returns in this range. This tax advantage can be especially valuable during periods of higher income or when receiving windfalls such as bonuses.
For some, increasing voluntary savings can help accumulate a buffer in their retirement savings to cushion against potential periods of unemployment, disability, or carer's leave, which are common experiences for many. However, this means you’ll be working with less disposable income available in the present.
Before making voluntary contributions, it's essential to ensure you have established an emergency fund and addressed any high-interest debt. These financial priorities should take precedence before considering additional superannuation contributions.
We see a lot of advertising touting industry super funds. Are they really the best option?
Research indicates that, despite being not-for-profit entities, industry super funds allocate a greater portion of their resources towards marketing compared to their retail fund counterparts.
Since 2005, Australian industry super funds have been notable for their 'compare the pair' advertising campaign, featuring scenarios where individuals compare their superannuation options. These advertisements typically contrast a retail super fund with an industry super fund, depicting the latter as superior. By 2014, this campaign had gained such prominence that it prompted scrutiny from the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA), raising questions about whether industry funds were truly prioritising the best interests of their members.
Determining the optimal superannuation option, whether it's an industry fund or another type, hinges on member outcomes and preferences. Key factors to consider include fund performance, fees, and service quality.
What should people be aware of if they’re looking for an ‘ethical’ super fund? Does such a thing really exist?
As demand for environmentally and socially friendly investment grows, more super funds are offering ‘sustainable’ super investment products. But questions around whether your super fund lives up to its ‘green’ credentials have become increasingly pertinent.
Among those accused of ‘greenwashing’ are HESTA and Care super, which have been promoting their sustainable credentials, while still holding substantial investments in fossil fuel.
A super fund’s complete list of investment can now be found in the mandatory portfolio holdings disclosure. For a non-expert who doesn’t know how to do screening, the level of detail can be mind-boggling. You may find yourself scrutinising a spreadsheet listing thousands of items.
What would really help is independent certification, and greater scrutiny by third parties such as environmental groups as well as the financial regulator, to force funds to deliver on the sustainability promises.
Is it true that women are often worse off on super at the end of their careers? If so, what causes this inequality?
The gender-based superannuation gap does exist.
According to research released by the Australia Institute’s Centre for Future Work in March, women in Australia on a median income will retire with $136,000 less in superannuation than men and accumulate about $151,000 below what is considered by the Association of Superannuation Funds of Australia (ASFA) to be a ‘comfortable’ retirement.
Many women now have less super than men due to the gender pay gap, career interruptions caused by child-bearing or caring responsibilities, and part-time work that women often experience.
But it’s important to be aware that superannuation is a structure like individual income tax, and so we each have our own account. But when we think about retirement, most of us pool our assets as partners or part of a household. So, the situation for women may look quite different when they think of themselves as couples in a family.
Young people don’t need to worry about their super yet, right?
Although retirement may appear distant for young people, adopting an early and proactive approach to superannuation can enable them to reap the advantages of:
- The compounding interest advantage, where they earn 'interest on their interest'. Each dollar contributed in their 30s holds about 3 times the value of dollars contributed in their 50s.
- A longer investment horizon. Young people typically have a longer time frame until retirement, permitting a more aggressive investment strategy early on. A longer investment horizon also offers more opportunities to make tax-effective contributions or receive concessional government co-contributions.
For the young workforce, paying timely attention to superannuation early on offers significant benefits within the system. The sooner they grasp and take charge of their super assets, the greater the long-term rewards will be.
Is there any such thing as a ‘right amount’ of super to aim for? What are the key things to keep in mind when calculating your target amount?
The Australian Government’s Moneysmart website provides a superannuation calculator, which offers an estimate of your retirement balance based on various assumptions. How much you’ll need depends on various factors, including your contributions, investment returns, the costs in retirement, such as mortgage payments, aged-care expenses, travel and hobbies.
When considering your retirement needs, it's advisable to assess your own spending habits. This can serve as a starting point to feed into the calculator for a more personalised estimation of your required savings.
No one wants to struggle to retire, or experience a significant lifestyle downgrade in retirement, due to poor financial planning. But remember, even diligent individuals may encounter setbacks, procrastination, or unforeseen circumstances. If your superannuation isn't as robust as you had envisioned, be kind to yourself and focus on constructive steps forward.
Should we all be making voluntary contributions on top of employer contributions?
Making additional voluntary contributions to super can serve as a highly tax-effective strategy to enhance your retirement savings down the line.
Superannuation is taxed at a rate of 15%, which is typically lower than the personal tax rates of most workers. This can result in additional tax savings ranging from 20% to 32% for employees with annual salaries between $45,000 and $250,000. Given the current market conditions, it's challenging to find investments with guaranteed annual returns in this range. This tax advantage can be especially valuable during periods of higher income or when receiving windfalls such as bonuses.
For some, increasing voluntary savings can help accumulate a buffer in their retirement savings to cushion against potential periods of unemployment, disability, or carer's leave, which are common experiences for many. However, this means you’ll be working with less disposable income available in the present.
Before making voluntary contributions, it's essential to ensure you have established an emergency fund and addressed any high-interest debt. These financial priorities should take precedence before considering additional superannuation contributions.
We see a lot of advertising touting industry super funds. Are they really the best option?
Research indicates that, despite being not-for-profit entities, industry super funds allocate a greater portion of their resources towards marketing compared to their retail fund counterparts.
Since 2005, Australian industry super funds have been notable for their 'compare the pair' advertising campaign, featuring scenarios where individuals compare their superannuation options. These advertisements typically contrast a retail super fund with an industry super fund, depicting the latter as superior. By 2014, this campaign had gained such prominence that it prompted scrutiny from the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA), raising questions about whether industry funds were truly prioritising the best interests of their members.
Determining the optimal superannuation option, whether it's an industry fund or another type, hinges on member outcomes and preferences. Key factors to consider include fund performance, fees, and service quality.
What should people be aware of if they’re looking for an ‘ethical’ super fund? Does such a thing really exist?
As demand for environmentally and socially friendly investment grows, more super funds are offering ‘sustainable’ super investment products. But questions around whether your super fund lives up to its ‘green’ credentials have become increasingly pertinent.
Among those accused of ‘greenwashing’ are HESTA and Care super, which have been promoting their sustainable credentials, while still holding substantial investments in fossil fuel.
A super fund’s complete list of investment can now be found in the mandatory portfolio holdings disclosure. For a non-expert who doesn’t know how to do screening, the level of detail can be mind-boggling. You may find yourself scrutinising a spreadsheet listing thousands of items.
What would really help is independent certification, and greater scrutiny by third parties such as environmental groups as well as the financial regulator, to force funds to deliver on the sustainability promises.
Is it true that women are often worse off on super at the end of their careers? If so, what causes this inequality?
The gender-based superannuation gap does exist.
According to research released by the Australia Institute’s Centre for Future Work in March, women in Australia on a median income will retire with $136,000 less in superannuation than men and accumulate about $151,000 below what is considered by the Association of Superannuation Funds of Australia (ASFA) to be a ‘comfortable’ retirement.
Many women now have less super than men due to the gender pay gap, career interruptions caused by child-bearing or caring responsibilities, and part-time work that women often experience.
But it’s important to be aware that superannuation is a structure like individual income tax, and so we each have our own account. But when we think about retirement, most of us pool our assets as partners or part of a household. So, the situation for women may look quite different when they think of themselves as couples in a family.
Young people don’t need to worry about their super yet, right?
Although retirement may appear distant for young people, adopting an early and proactive approach to superannuation can enable them to reap the advantages of:
- The compounding interest advantage, where they earn 'interest on their interest'. Each dollar contributed in their 30s holds about 3 times the value of dollars contributed in their 50s.
- A longer investment horizon. Young people typically have a longer time frame until retirement, permitting a more aggressive investment strategy early on. A longer investment horizon also offers more opportunities to make tax-effective contributions or receive concessional government co-contributions.
For the young workforce, paying timely attention to superannuation early on offers significant benefits within the system. The sooner they grasp and take charge of their super assets, the greater the long-term rewards will be.
Is there any such thing as a ‘right amount’ of super to aim for? What are the key things to keep in mind when calculating your target amount?
The Australian Government’s Moneysmart website provides a superannuation calculator, which offers an estimate of your retirement balance based on various assumptions. How much you’ll need depends on various factors, including your contributions, investment returns, the costs in retirement, such as mortgage payments, aged-care expenses, travel and hobbies.
When considering your retirement needs, it's advisable to assess your own spending habits. This can serve as a starting point to feed into the calculator for a more personalised estimation of your required savings.
No one wants to struggle to retire, or experience a significant lifestyle downgrade in retirement, due to poor financial planning. But remember, even diligent individuals may encounter setbacks, procrastination, or unforeseen circumstances. If your superannuation isn't as robust as you had envisioned, be kind to yourself and focus on constructive steps forward.
The information provided in this column is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this column, you should consider the appropriateness of the information for your own objectives, financial situation and needs.
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