Take time to evaluate your super options

Whether or not the Productivity Commission review of superannuation results in major changes in the compulsory super laws and regulations, the report highlights potential traps for the unwary.

Relying on employers, unions and advisers to make decisions for you can and often does result in poor outcomes and inadequate returns on your investments.

For a variety of reasons, the current arrangements, while vastly improved over the years, do not provide adequate protection for most workers, who rely on their employer's default superannuation options.

Amongst the many issues are the problems faced by people with several employers who end up with multiple super accounts and inadequate or unwanted insurance coverage.

Compulsory employer super has now largely replaced voluntary personal contributions for many but by no means all super fund members.

Especially before the advent of compulsory super for wage earners, many individuals with the help of advisers or financial institutions opened their own superannuation accounts.

At that time, hefty entry and exit fees and commissions were prevalent and super funds were not required to reveal the extent of these charges.

The major initiative of then Treasurer John Dawkins to introduce legislation requiring full declaration of fees, charges and commissions unfortunately only applied to new accounts.

Unless holders of existing policies investigated the fee structure of their fund and changed fund, they continue even today to still face high ongoing fees and entry charges on new contributions to their funds.

Despite the considerable effort involved in evaluating the suitability of a fund for individual personal needs, the benefits can be large.

Crucial questions include information on entry and exit fees and how the account balance has increased over time.

Comparing the current exit value of the account with the total contributions made over the years will quickly reveal whether further research about the benefits of the fund is needed.

A complication in assessing the suitability of any super fund is the cost of insurance provided.

The insurance coverage in default super funds varies widely. Even when the default fund is an attractive option, determining whether additional insurance coverage is needed is an important issue.

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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