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While most Australians find superannuation generally confusing, according to new research by BT Super for Life¹ only 35 percent of Australian women are confident their super will meet their financial needs when they retire. What’s more, with the gender superannuation gap that currently exists in this country, the fears of the other 65 percent of working women could be justified. Consider this, the average Australian woman currently retires with just $73,000 compared to the average male who retires with a super balance of $155,000².
Melanie Evans, Head of Superannuation at BT (pictured), says, “Women are adept at juggling motherhood and their careers, but when it comes to managing their super most don’t know where to start. Australian women need to get their nest eggs on track, whether retirement is far away or just around the corner.”
To help clear up some of the confusion, Melanie Evans agreed to answer some frequently asked questions related to managing superannuation.
SUPERANNUATION EXPLAINED
Q: Do you have to join the super fund offered through your employer, or can you choose to have your super paid into another fund?
A: In 2005 the Government passed legislation that enabled all Australians to have a choice of super fund. So on starting a new job, you’re are able to either take the superannuation fund that employer will offer you – and that’s quite often referred to as a default fund – or alternatively, Australians now have the option of telling their employer where they want their super invested. To do that, all you need to do is fill out a ‘Superannuation choice form’ with your existing superannuation fund’s details and give that to your employer’s payroll team and they will ensure that your superannuation money is forwarded to the fund that you’ve nominated.
Each employer should have copies of the ‘superannuation choice form’ and the form is also freely available on the Australian Tax Office website. If people are having problems tracking it down, to refer to their super fund’s website because all super funds will offer that form online.
Q: How do I find out where all my super is from previous employment and how can I move amounts from several super accounts into one fund?
A: People generally fall into one of two categories. The first is people who know where their money is or the name of their previous super fund and it’s a matter of just getting all of their paper work together. So step one for those people is to go and grab all of your old statements. Generally those statements will give you all the information that you need to roll your super over and then it’s just a matter of filling out a ‘roll-over form’ and again, refer to your existing super fund’s website or the Australian Tax Office to obtain a copy of this form. After you complete the form send it off to the super fund you’re trying to roll over from.
For people who have what is quite often referred to as ‘lost super’ there is an online tool called SuperSeeker on the Australian Tax Office website which you can use to track down all the super you have invested over the years with various super funds. You are then able to reclaim all of your super an roll it over into your existing super fund.
Q: How much money will I need for retirement?
A: There is actually quite a lot of research into this. The latest research indicates that in order for a couple to live self funded in retirement – which means they will have very little if any reliance on the Government pension, they have private health cover, they’d be travelling, eating out and quite active – the average Australian couple needs an income of about $52,000 a year. In order to fund a retirement income of $52,000 a year, a couple would need to have about half a million dollars at age 65. If a couple is living a more modest lifestyle but still quite active, the average Australian couple needs about $28,000 a year in retirement.
In order for a single female to fund a retirement income of $35,000 a year, she will need $580,000 of superannuation if she wants to retire at 60.
These figures will vary to lifestyle and individual circumstances. So my advice is for people who want to investigate this is to go and see a good financial planner. Financial planners are specialists in assisting people to set those sorts of goals and working out strategies of how to get there.
Q: Will the employer’s contribution to super be enough or will I also have to make voluntary contributions?
A: At BT we believe that you have to save beyond the 9% superannuation guarantee to ensure that your retirement is comfortable. There is a plethora of research that supports this view. For example, the average 30 year old with $23,000 in super, if they earn $60,000 a year, they’ll retire on about $370,000. But if that 30 year old saves 12% of their salary they’ll retire on $100,000 more in retirement.
The issue for women is that we live longer and it is estimated that women should be saving about 13% more than their male counterparts. Women are also more likely to take career breaks to raise children. Taking 5 years out of the workforce generally results in 25% less super than someone who takes no career breaks at all and most women do find they have to play ‘catch-up’ when they do return to the workforce.
Women are also paid lower salaries so there is going to be a gap between men and women simply as a result of that. So for women in particular, the sooner they can start making voluntary contributions the better. It doesn’t have to be huge amounts, a small amount over a long period of time can make a huge difference to the amount of super you’ll receive tax free at retirement.
Q: During the GFC super funds lost a lot of money, how can I ensure my money is safe?
Super funds invest in assets and those assets range from cash to mortgages, shares and property, and essentially what happened during the Global Financial Crisis is that the value of those assets depreciated. So when we talk about superannuation funds losing money, what has actually happened is the assets they invest in have actually depreciated in value.
The comparison I draw for people is that it’s like your family home. The value of your home can go up and down over a period of time, but unless you want to sell it, there’s not going to be any immediate impact on you. So the impact of the Global Financial Crisis was far greater on those people who were approaching retirement. The good news for people who are not approaching retirement is that the value of those assets have appreciated over the past six months. So over the last 12 months, the average Australian super fund has returned between 15% and 25% of the value of those assets.
What’s also been happening over the last 18 months is that when your employer contributes the 9% of your salary to a super fund, you’re actually buying those assets more cheaply and as the value of those assets returns, we’re actually making more money on those assets.
What is important for people is to know how your money is invested. Most of us do have exposure to shares in our super fund and as a result of that, we need to be very comfortable with the fact there are risks associated with being exposed to share markets as those assets are far more volatile than more conservative assets like cash and fixed interest. However, the trade off is the growth available to you over time because shares offer investors higher returns.
The younger you are the more time you have to withstand the ups and downs of the share market. But as you move closer to retirement, you’re less willing to accept the risks associated with exposure to the share market and so you’ll want to reduce that risk.
At BT we’ve introduced what we call ‘life stage funds’ where we look at when the customer was born and over time we adjust the risk for you. One of the reasons we’ve introduced life stage funds is because over 80% of people never change their investment options with their super fund. So you’ve got 25 years old keeping exactly the same investment profile until they’re 60. If you have no diversification in your portfolio and you’re approaching retirement, that’s a very risking strategy.
As you age, you should reduce your exposure to risky assets and increase your exposure to more conservative assets. But I wouldn’t recommend you move all of your money to conservative assets because when you retire, you’ve still got to support yourself over 20 years. So it’s important that you retain some growth assets in your portfolio because when you retire you have no income coming in, so you’ll want that lump sum working hard for you.
Q: Can I get early release of my super due to financial hardship?
The rules around early release of some of your super due to financial hardship are very clear and ATSIC work with super funds very closely on this. The guidelines for ‘financial hardship’ are that a person must be in receipt of a Centrelink benefit for at least 26 weeks and you have to show proof that you can’t reasonably cover your immediate living expenses. So what you would do is give your super fund a call and explain your financial circumstances and they can tell you what proof or evidence you will need to provide.
In the event that you do meet the requirements of financial hardship, it’s unlikely you’ll get early release of all your super. What your super fund will do is actually work with you to identify how much money you need to meet your immediate expenses. Here at BT we actually have a hotline called Westpac Assist where we have specialists who can help our customers through financial hardship in more detail.
Q: What happens to my super if I die or become permanently disabled before retirement – does the government keep it?
Superannuation is your money. It is your asset and you have access to it and the government cannot take it.
If you’re in a situation where you are unable to work again due to permanent disability, you may apply to your super fund for early release of your accumulated benefit. Similarly, if you have a terminal medical condition and you are able to provide medical evidence that you are unlikely to survive longer than 12 months, a super fund may also release your superannuation benefit early.
Through your super fund you are able to nominate who your superannuation benefit will go to in the even of your death. If you have dependents it’s important that you nominate them as your beneficiaries, so upon your death, they can obtain release of your accumulated superannuation from your super fund.
MORE INFORMATION
- BT Super for Life – www.btsuperforlife.com.au
- Australian Tax Office – www.ato.gov.au
References:
1. Galaxy Research conducted an online survey on behalf of BT Super for Life, to coincide with the launch of BT Super for Life into the St.George and BankSA retail networks. Fieldwork was completed in January 2010 among 1522 Australian adults, with data weighted by age, sex and region to reflect the latest ABS population estimates.
2. Australian Institute of Superannuation Trustees (AIST) media release dated 7 March 2010.