Superannuation shrinkage: how to avoid a hit to your nest egg

Millions of dollars needlessly disappear daily from super accounts across Australia, and a few steps can help stop the shrinkage.

If someone gave you $100 cash, and then a stranger took it from you without asking, you’d probably be upset.

What if it was $1000? Or even $10,000?

This sort of disappearing act happens automatically for potentially millions of Australians, as the money their employers pay into their super funds gets swallowed up unnecessarily by fees, premiums and other factors.

And as super fund statements land in letterboxes and inboxes across the nation this month, now is a good time to check if money is needlessly going missing from your nest egg.

1. TOO MANY FUNDS

One of the fastest ways to lose savings is having multiple super funds each charging you monthly administration fees and other charges.

While there are government systems in place to proactively consolidate low-balance super accounts that are inactive for 16 months, they don’t help everyone – especially those working for different employers who may pay into different super funds.

You can check how many super funds you have on the my.gov.au website, and also use it to consolidate funds where needed.

Super savings can shrink if you don’t keep an eye on your nest egg.

2. TOO MANY FEES

Super fund fees have dropped dramatically in recent years but there is still a wide variety in what people are being charged for administration and investment.

Check your annual statement or your fund’s online portal to see what you’re paying, as researchers have estimated people who pay 1.5 per cent a year or more in fees could miss out on more than $200,000 of lifetime gains.

Websites such as canstar.com.au and Finder.com.au allow you to compare super funds, examine their short-term and longer-term returns and see what fees they charge on a typical balance. The ato.gov.au website also has a comparison tool for default MySuper funds.

3. INSURANCE PREMIUMS

Australians are generally underinsured when it comes to protecting their families with term life, disability and income protection insurance, although some super fund members may find themselves wasting money on unnecessary cover.

Life insurance is vital when you have children and large debts, but as those demands dwindle, older super fund members may be able to self-insure using their existing assets – plus their nest egg itself, which passes to family members upon death.

Life insurance becomes more expensive the older you get, so if your other assets are enough to repay debts and secure your loved ones financially if you’re gone, consider cutting or cancelling cover so more money can go towards your future.

4. DODGY BOSSES

Technology improvements in payroll systems and tax reporting have made it more difficult for employers to avoid their superannuation obligations, but there will always be bad apples who don’t pay up.

A boss is legally required to pay at least 10.5 per cent of your wage into your super, at least every three months. Accommodation, food services, construction and retail trade are the key sectors where employees complain about unpaid super, according to Industry Super Australia.

The ATO has a step-by-step online guide to help people who think their employer may not be paying them enough superannuation.