Five of the most common super 'mistakes'
February 5, 2024
Super can be a set and forget strategy. But there are also plenty of opportunities to boost your savings in the long journey to retirement. Equally some people make poor decisions about their super that can erode their savings.
We asked the team at TelstraSuper Financial Planning to share some of the most common super “mistakes” they come across.
Paying multiple sets of fees
According to the Australian Tax Office, there are still about three million Australians holding two or more super accounts, including those holding duplicate accounts within the same fund.
As TelstraSuper Financial Planning Financial Adviser Antony Wojcik points out, this can result in super fund members unintentionally paying multiple sets of fees, including insurance premiums, which can significantly erode their super balance over time.
“Having just one super account means just one set of fees and makes managing your finances easier. It could make a big difference to your final super balance,” says Mr Wojcik.
The good news is that you can combine your super easily. Click here to find out more or you can log in to SuperOnline to follow the prompts to find your other super.
Paying extra tax on earnings after 65
It’s been estimated that more than 1 million older Australians may be paying extra tax on their super even though they may be eligible for a tax-free retirement income stream.
“Many older members are unaware that once they reach the age of 65, they can start a retirement income stream, regardless of whether they continue to work,” says TelstraSuper Financial Planning Financial Adviser Nathan McCabe. “It is easy to switch across and there are savings to be made.”
When you set up a retirement income stream you move from the so-called “accumulation” phase where your super earnings are taxed at up to 15% to the “pension” phase where there is no tax on earnings.
While certain restrictions apply (there is a limit to how much super you can move across to the pension phase), many people benefit financially from switching across, says Mr McCabe.
If appropriate, this strategy can also help couples even up their super balances, where a spouse or partner has a much smaller balance. Within certain limits, the person with the higher balance can withdraw up to several hundred thousand dollars from their account tax-free each year and add to their spouse or partner’s account.
Ignoring your insurance
There are many advantages to insurance cover inside super: Affordability; premiums paid from your super account; tax-effectiveness and easy availability of default cover due to automatic acceptance are four key benefits.
Most people have an underinsurance gap, meaning that their insurance payout wouldn’t be enough for their partner or dependants to maintain their lifestyle if they passed away or couldn’t earn an income due to ill health.
But at the other end of spectrum, there are also those who have default insurance when they no longer need it, says TelstraSuper Financial Adviser Caroline Rees.
“Some of my clients have reached an age where they are debt free or no longer have financial dependants but are still paying for a high level of insurance cover they don’t need,” says Ms Rees. “Often they are not aware of the impact that paying premiums can have on their retirement savings.”
Ms Rees says super default cover typically reduces you age (with super death policies generally expiring at 65 or 70) and premiums are reduced accordingly.
But in situations where a person’s insurance cover stays constant, the premiums typically increase and the impact on your super balance can become very significant.
Ms Rees says older members need to consider whether they still need insurance.
“Insurance has a use-by date. You need to check that you aren’t paying for something you no longer need”
Not taking advantage of tax benefits
It’s not just high-income earners who can benefit from tax-effective and top-up super strategies.
“There are many strategies that have been specifically designed to boost the super balances of low to middle income earners,” says TelstraSuper Financial Planning Financial Adviser Jeremy Lack.
Taking a career break? If you earn below a certain income, your spouse may be able to top up your super and you may receive a tax rebate.
Similarly, if you earn below a certain income and can afford to make a post-tax contribution into your super, the Government will boost your super through a “co-contribution” payment.
And you don’t have to be a high-income earner to benefit from salary sacrificing into super. If you're earning over $45,000, the personal tax rate on some of your salary is 32.5%. Generally, super is only taxed at 15%. By putting extra money into your super you can potentially lower your taxable income, save on the tax you pay and boost your super.
Switching at the wrong time
Saving for retirement is a 30 to 40 year journey (or more!) for most people and along the way there is bound to be market volatility that can make it tempting to switch to a more conservative investment option.
Mr Lack says many people who switch to more conservative investments, may do so at the wrong time, and come to regret the move.
“Many of those who switched investment options during the depth of the Global Financial Crisis in 2009 were worse off than those who stood firm on their long-term strategy. Members who didn’t make changes saw their accounts recover after the GFC because they left their investments to recover, rather than crystallised capital losses,” says Mr Lack.
“It's normal for markets to have cycles of ups and downs so consider if you have time to ride out short term bumps and make the most of gains when the market bounces back.”
Want to avoid super mistakes?
TelstraSuper members can get simple advice about their TelstraSuper account over the phone at no additional cost – it's part of their membership. Plus, TelstraSuper is open for everyone to join. TelstraSuper Financial Planning also offers more comprehensive advice for a fee.