The progressive introduction of the MySuper default super system may be providing a perhaps unexpected opportunity for financial planners to help boost the retirement savings of fund members currently in their employers’ default super fund.
Superannuation editor Stuart Jones writes in the Australian Superannuation Handbook 2015-16* that financial planners have an increasingly important role in demonstrating how some clients may be better served by “actively selecting” a super fund to match their circumstances.
From January 2014, all new contributions and rollovers must be directed to an authorised MySuper product for members who have not chosen a super fund. By July 2017, super funds must transfer outstanding default balances into a MySuper fund.
A MySuper default fund must provide such features as a single, diversified investment strategy (which can include a lifestyle strategy). Further, MySuper funds must offer a minimum level of death and total and permanent disability insurance with an opt-out option, and charge a standard set of easily-comparable fees with certain restrictions.
The way that MySuper default funds are, by design, readily comparable makes it a more straightforward exercise for advisers to assess their suitability for a client’s circumstances.
Many super funds have chosen their flagship balanced portfolios as their MySuper products, which many members would consider appropriate for their needs.
When carefully evaluating super funds – including MySuper default funds -fund members would consider such points as:
- Fees charged for investment management and administration in particular. Higher fees erode investment returns, particularly over the long term.
- Suitability of a super fund’s range of investments. (MySuper products must have a single, diversified portfolio.) Members should be cautious about paying extra for investment options they are unlikely to use while ensuring a fund’s investment option(s) is appropriate for their needs.
- Death, total and permanent disability and income-protection insurance. (MySuper products must offer at least a minimum level of death and disability insurance cover.) Consider, for instance, the extent of cover for premiums charged, quality and suitability of cover, insurance options, limitations on cover and flexibility of cover.
Careful consideration of these factors may convince some members to stay with their MySuper default fund – or switch to a more appropriate fund.
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Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment. |
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