The key message is that accessing your super may be a critical matter of meeting life's necessities in the wake of a global pandemic – but explore all other options first because the long-term cost on your potential retirement savings is significant.
An interesting by-product of all the discussion about early access to superannuation is that it may have sparked the interest of younger investors who haven't always paid the closest attention to their own situation.
According to a research report by the Financial Services Council, the majority of young adults do not check their superannuation accounts and those under 35 were more likely to not know how much money they currently held.
With superannuation so topical, now could be a good time to learn a little more about it, even if retirement seems a long way away – particularly if you do not need to access but have rediscovered multiple accounts that you may have not got around to consolidating and still costing you in fees.
Superannuation is essentially money you regularly put into a fund in preparation for when you retire. It is deducted from your pre-tax earnings and when you stop earning a wage, your superannuation funds will be what helps provide you with a regular income in retirement.
Your employer is responsible for paying your superannuation into your specified fund at a compulsory contribution rate of 9.5 per cent of your annual salary. This applies to everyone who earns A$450 a week before tax.
Your superannuation fund then manages your money for you and invests it – either in their default fund or in the investment option of your choice.
One of the simplest things you can do to manage your superannuation is to make sure you only have one account. If you've had multiple jobs in the past, your employer may have selected a default superannuation fund for you. And the more accounts you have, the more fees you are paying and the more your balance gets eroded. You can access ATO services to consolidate your superannuation via the MyGov website.
You are also able to select an investment option for your super, typically growth, balanced or conservative. Each investment option differs in their risk and return. A growth option will usually invest more of your superannuation in higher risk assets such as shares or properties, whereas a conservative option will invest more in lower-risk assets such as fixed income or defensive assets.
One of the key advantages that younger investors have is time, for the simple fact that the longer you have to invest, the more opportunity you have to realise returns. Choosing a high growth investment option earlier on means that although it may be riskier, you have the time to ride out market cycles and capitalise on the good years before you reach retirement. You also have time to reap the benefits of compounding interest on your superannuation balance.
Another strategy to consider is voluntarily contributing funds to your superannuation if you are in a position to do so. Even small amounts add up over time, and could reduce the tax you pay. According to the government's Money Smart website, these concessional contributions are generally tax effective if you earn more than $37,000 a year as they are taxed at 15 per cent. This might be lower than your marginal tax rate. But just remember there is a cap to how much you can voluntarily contribute a year.
While ultimately the decision to withdraw superannuation should be determined by your own financial situation, it is also important to understand the potential impacts of doing so. Based on an average net return of 6 per cent per annum, the value of $20,000 (the maximum you can withdraw) could grow to approximately $205,000 in 40 years.
Drawing down on your superannuation right now also means you are selling assets when the market values have fallen because of the uncertainty around COVID-19 and the economic impacts. You are asking your superannuation fund to sell your assets at a lower market price and even if you intend to repay it over time cashing out now may mean you can't recover this value when the market rebounds over time.
For those in their 20s or 30s, superannuation won't seem like a priority when you may have only recently entered the workforce. And day-to-day living expenses take precedence so voluntarily contributing more to your superannuation won't seem too appealing when you usually can't access those funds until you turn 67.
But superannuation is more than just a distant pile of money for future you, it also represents financial independence and freedom, and is best cultivated from an early age. This is especially true in recent years where millennials are experiencing record low interest rates, a tough housing market to crack and low wage growth. Making the right investment decisions about your superannuation may be an accessible way to growth your wealth right now.
Written by Robin Bowerman
Head of Corporate Affairs at Vanguard
29 April 2020
BEc (Acc), MBA, CPA, FFin
David has been in the Financial Services Industry for nearly 30 years. He was one of the founding Directors of the successful Financial Planning and Stockbroking Practice, Henderson Gregory Forrest, for a decade. Prior to that, he held senior roles in companies such as ING, KPMG Accountants and AMP. David was previously Chairman of OAMPS Superannuation Trustee Board and currently serves as an independent Board Director for several companies.
David’s extensive experience in all forms of superannuation, including Self Managed Super Funds (SMSF), Defined Benefit Funds, retirement funding through Account Based Pensions, stockbroking with a focus on Direct Share Investment, Taxation/Remuneration Planning, Centrelink, Aged Care and business management, equip him to advise expertly on all aspects of Financial Advice.
Those with a particular interest in superannuation/SMSFs, direct share investment, salary packaging or applying for the Centrelink Pension will find his knowledge and ability in formulating and implementing creative, logical and simple wealth creation strategies a valuable asset.
David maintains a strong personalised client service focus, providing tailored solutions for clients.
David Forrest is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846
Business Finance Manager
B Bus (Acc), CPA
Michelle’s career has spanned across the Financial Services, Retirement Living and Aged Care industries working in the private sector, not for profit and more recently with the state government for over 20 years. Her experience extends to many facets of the financial services industry, having worked in superannuation administration, technical support and financial planning practice administration.
Commencing with AMP and subsequently working in commerce and accounting roles with companies such as Brambles, Adelaide Bank Retirement Services, ECH Inc and SA Health and Wellbeing, Michelle returns to financial services after working in practice financial management at Henderson Gregory Forrest. This wide range of experience from senior accounting and management roles has provided Michelle with a strong background in business administration.
With an astute financial acumen and keen interest in business improvement strategies, Michelle ensures the smooth running of the Integrity Financial Advisory practice providing valued management support to our personalised client service focus.
B Com, Dip FP
Darren joins the Integrity team as a strong technical specialist with almost 20 years’ in the Financial Services industry. He has extensive experience advising clients on how to build and protect wealth, prepare for retirement and retire comfortably.
Commencing with advising clients on direct equities for over 10 years at Baker Young, Tolhurst Noall, and ABN AMRO Morgans, his career expanded to providing holistic client advice, having operated his own financial services licence and company. Most recently having worked for a 'Big 4' bank, he has welcomed the more personalised ‘client first’ approach that is evident at Integrity Financial Advisory.
With a deep understanding of investment markets, he is appropriately qualified and authorised to provide direct share advice, as well as superannuation/SMSF advice, encompassing both investments and insurance.
Meticulous in his approach, he aims to deliver quality outcomes for clients by understanding their financial situation and needs before providing advice which is central to our advice process. Darren supports David in tailoring solutions for all client financial advice needs.
Darren Chalk is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846
Client Service Manager
Natasha commenced working in the financial services industry in June 2008 and is a new addition to the Integrity team. During the past 11 years, she worked closely with advisers providing administration support in a share broking and financial advice business.
Having successfully completed her RG146 accreditation in securities and managed investments and continued her studies to complete her competency in Superannuation, Natasha can ably assist with all aspects of fixed interest, cash management, portfolio administration, direct shares and client advice implementation.
Natasha takes time to ensure she understands our client’s financial goals and needs and believes in creating, preserving and utilising wealth through effective financial management as a key objective in helping clients.
Client Service Manager
Kelly has worked in the Financial Services Industry for over 10 years and has supported David since 2013. Kelly’s primary background is in customer service and administration.
On starting in the industry, Kelly initially focused on direct shares, stockbroking administration and client liaison. Since moving to the Client Service Manager role, Kelly has developed skills encompassing all aspects of financial planning including client advice implementation and term deposit management.
Kelly’s experience in the direct share environment, especially management of estates, provides a key part of the direct equity expertise in Integrity’s Client Service Team.
Returning from Parental Leave following the arrival of her second child, Kelly has developed further honed multi-tasking skills after juggling the demands of a growing family.
Client Service Manager
Jasmine has worked in the financial services industry for over 12 years in all areas of client administration, working with David since 2013.
Jasmine has extensive knowledge and experience in client service including implementation of advice, portfolio reporting, assisting with the establishment of Self Managed Super Funds (SMSFs), term deposit management and a long history of helping clients with their enquiries.
Jasmine’s attention to detail, yet gentle approach, means she is able to solve the trickiest of questions for our client community.
Jasmine has gained her Certificate III in Financial Services qualification.
Client Service Manager
Merrilyn has worked in the financial services industry for over 11 years in all areas of client administration, and is a new addition to our client services team, returning from Melbourne to join the team in June 2019.
Merrilyn has extensive knowledge and experience in client service including implementation of advice, managed fund administration, assisting with the establishment of Self Managed Super Funds (SMSFs) and process improvement for the previous practices she has worked with. Merrilyn’s experience with direct shares constitutes the other part of our administrative support for direct equity investments.
Merrilyn’s warm and caring nature continues to endear her to our clients and she has already established herself as a valued member of our team.