Retirement
Could you be stuck in a poor-performing fund?
The government’s superannuation reforms to eliminate multiple superannuation accounts could have unintended consequences, with older Australians locked into financial decisions made by their teenage selves, an industry expert has warned.
Could you be stuck in a poor-performing fund?
The government’s superannuation reforms to eliminate multiple superannuation accounts could have unintended consequences, with older Australians locked into financial decisions made by their teenage selves, an industry expert has warned.
Aware Super CEO Deanne Stewart noted that it is critical to get the stapling mechanism right, with the current model running the risk of members being stapled into underperforming funds or ones not best suited to their life stage or career.
“Super funds are currently not designed for stapling for life,” Ms Stewart said.
“Many funds that attract a large number of entry-stage employees have a higher allocation of growth assets that are perfect for someone who still has more than 40 years to absorb the consequences of major financial events like the GFC or COVID-19 market volatility.
“But for someone approaching middle age or even retirement, a high-risk investment strategy is generally less suitable and could impact their long-term financial future,” she said.
Ms Stewart believes stapling members to their first fund would lock a mature Australian member to the financial decisions they made as a teenager or when they entered the workforce.
“This could cost them thousands in retirement,” Ms Stewart said.
The CEO also warned of changing working situations and career paths throughout their lives, with members’ needs changing as well.
“An entry-level employee will also experience on-the-job risks that may also change over time. In the example of wait staff who become police, the insurance policy that they first take out through super has the potential to see them uninsured as they move into their career in the police force,” she explained.
Instead, Aware Super proposes a slight modification to the government’s proposals, with members through MyGov actively choosing their superannuation fund whenever they change jobs.
The CEO noted this would encourage workers to consider their super and the option that is best for them, given their career path and stage of life, presenting members with flexibility as their careers progress and empower them to regularly engage with their super.
“Under the new arrangement, the ATO, via the Single Touch Payroll system, would present a number of choices suited to the member’s industry, stage of life and age, including their current fund, the default for their employer and the ability to enter details of another fund of their choosing,” Ms Stewart said.
“This positive step would help respond to the significant issue of members unknowingly having multiple accounts while offering them the most appropriate choices for their situation.
“Ultimately, providing simple mechanisms for members to be more engaged with their super can only be a good thing,” Ms Stewart said.
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