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The multi-billion dollar fight over your superannuation

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By John Beveridge - 
Superannuation fight defaulted retirement products age AustralianSuper Aware Super

There is a multi-billion dollar fight on for your superannuation that you should be very aware of.

A group of the large industry funds, led by AustralianSuper, are pushing for a system in which members could be “defaulted” into retirement products when they reach retirement age.

However, some of the other funds, including Aware Super which has a strong financial advice profile, are pushing for a model in which members are given more tailored financial advice.

Reading the tea leaves from a discussion paper released by Treasurer Jim Chalmers, it seems that the retirement product default position seems to be getting the upper hand but that shouldn’t prevent individuals from becoming much more involved with their super, which in many cases is one of their the biggest and most important investment.

No matter who wins the fight over automatic defaulting, there will be nothing stopping informed and involved super fund members from taking charge of their own situation and instructing their fund to move from the accumulation to pension mode at a time of their choosing – within regulatory age and employment limits, of course.

Apathy can cost you big time

The problem of automatic defaulting comes about when uninvolved super fund members take no action and leave their super in accumulation mode long after they could have switched to pension mode.

This can be quite costly given the 15% tax on super investment earnings which is why all super fund members should be putting the date of their 65th birthday into their diary.

More than a million Australians voluntarily paying unnecessary tax

With more than a million Australians paying this investment tax unnecessarily, it adds up to a considerable voluntary contribution to the national coffers.

There are also many other circumstances when you can stop your super fund paying these taxes earlier than turning 65, such as an earlier retirement or when circumstances are favourable for starting a transition to retirement pension arrangement.

Aware Super has warned that Australians could be worse off in retirement if they do take the “automatic default” option and think it is worthwhile for many to do their homework and get some tailored financial advice which take into account individual circumstances and that of the household as well.

Aware Super’s head of advice, Sarah Forman, said that relying on automatic defaults could leave super members worse off.

“Any default is only planning for that one individual and not planning for that household,’’ she warned.

Ms Forman said issues such as dependents to be looked after during retirement and plans for using a lump sum were examples of the sort of issues that could be investigated as part of a financial planning approach.

“There’s uniqueness in members’ circumstances, and any default answer is ignoring those nuances that can be really quite important.”

Automatic default could be better than nothing

However, there is a recognition within the super industry that some disengaged members might still be better off to be automatically moved into pension accounts, particularly if they have small balances, although they should also be alert to the opportunity to structure their circumstances to maximise their age pension when eligible as well.

It should also be pointed out that automating the transition to pension mode can be a big advantage to the fund, which gets to hang on to the fees until and unless the super member decides to move their account.

Whatever happens, the super industry is on notice that it needs to make a much more concerted effort on catering for retiring members after many years of concentrating on the accumulation stage of super.

With a silver tsunami readying for retirement, the need for appropriate retirement products and excellent advice have never been more needed.