5 questions to ask your super fund during COVID-19?

The 2019-20 financial year is likely to end with reduced superannuation savings, but that is no reason to panic even if you are nearing retirement age.

It is understandable to be worried about your super balance.

Superannuation values fell 8.9 per cent in March, the biggest monthly fall for super ever. The fall pushed values back to January 2019 levels.

However, superannuation fluctuates with stockmarket peaks and troughs. According to research group Rainmaker, when sharemarkets climbed from their lows, default super funds as well as MySuper turned their fortunes around.

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Getting super returns from your cash

MySuper is the government run fund your employer pays your superannuation into when you haven’t nominated your own fund.

It is these default funds where the majority of Australians are invested.

The MySuper index reported a 2.2 per cent increase in value over April. This is in line with the Australian Stock Exchange (ASX) All Ordinaries index rising 8.9 per cent from its low point to its high on 30 April.

At its worst, the ASX fell 36 per cent this year, before bouncing back 22 per cent.

To put the current superannuation performance into perspective, during the GFC in 2008 funds fell 21 per cent.

We’re not even close this time around.

The current pandemic has heightened fears of great falls, but Australian funds are holding up surprisingly well in this crisis compared to GFC levels.

The problem with fear

The problem with fear is that it causes people to make irrational decisions, like taking money out of super when it is unwarranted, particularly when there are other options available.

That’s not to say some people genuinely needed to access the $20,000 support, but you should think twice before doing so.

The Australian Prudential Regulation Authority (APRA) has stated that Australian superannuation funds have already processed over $6.3 billion worth of super withdrawals to over 830,000 Australians.

However, Industry SuperFunds’ numbers show that a 30-year-old who accesses $20,000 from super during the pandemic, could lose about $100,000 by the time they retire: a 40-year-old could lose more than $63,000.

Bottom line, try not to do it if you don’t have to.

If don’t have to access your super, but are still unhappy with your fund, you have options.

What to do if you’re not happy with your fund

The mandate of your super fund should be to secure a dignified retirement for its members and minimise dependence on the Aged Pension.

That’s a great start, but should there be more to it, especially during the current pandemic. Should your super fund manager also look to manage your personal risk?

Current uncontrollable events have caused numerous issues. Long-term unemployment is now on the table for hundreds of thousands of Australians. The pandemic is also causing health crises.

So the question is: does my super fund work to meet my personal needs, even when my needs change?

It’s not easy for your super fund to do this and to deal with members on a personal basis would require a shift in framework, but now is a better time than any for the industry to change tack.

That said, there are questions you can ask your fund now. If your fund comes up short on answers, then maybe it’s time to consider a change. Although, remember super is a long game and you shouldn’t solely base this decision on a 12-month time frame; use its ranking over a five and 10 year period.

Here are five questions to ask your super fund before making that decision:

1. How does my super work ?

Ask how your fund operates, what it’s overall returns are over a long period of time and how good it is at communicating with its members. Communication is key to stay on top of what your fund is doing.

2. What are the fees charged?

What fees are deducted from your contributions? You should check entry fees, ongoing management fees and unit price spread.

3. Can I choose industries to invest in?

$2.3 trillion Aussie dollars are invested in super, most into core portfolios. However, you should be able to invest based on your lifestyle and ethics, so you may want a say in what industries your fund invests in

4. Are you diversified?

Don’t put your eggs in one basket. A diversified portfolio reduces your exposure to a single economic event. ASIC state “diversification reduces overall investment risk and reduces volatility of returns on your investment portfolio as a whole”.

5. Do your provide insurance coverage?

Do your contributions also cover Life Insurance and Permanent Disability Insurance? Yes/No How much does it cost? What does it cover? Can you alter the insurance at any time?

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