Paul Clitheroe
Paul Clitheroe

Super news is good

THERE'S good news for Australia's 12 million workers who have seen their super savings grow by around 15% over the last financial year. It's a near-record result for super funds, and one that will leave many of us better off in retirement.

According to research group SuperRatings, 'balanced' style super funds, in which around 70% of Australians have their nest egg invested, achieved a median return of 14.7% for the 2012/13 financial year.

It's the strongest result since the onset of the global financial crisis in late 2007, and the third highest annual return since the introduction of compulsory superannuation 21 years ago. The two previous bumper years were 2006/07 when funds notched up gains of 15.7%, and 1996/97 when the all-time record annual return of 18.0% was achieved.

The big driver behind the latest stellar returns on super was sharemarket growth. However I have always emphasised that super is a very long term investment and it pays to look at the big picture rather than individual years.

By way of example, SuperRatings crunched the numbers and found that $100,000 invested 10 years ago in a balanced fund would have accumulated to $191,631 by the end of June 2013. That's despite significant turmoil on investment markets over the last decade, and it works out to an average annual return of 7.0% over the period. It's compelling evidence that super plays a valuable role in our long term wealth.

Over the next few weeks many workers will receive their annual super fund statement in the mail, and I recommend taking a few minutes to take a good look through it.

Your statement will show the fund returns as well as the fees you're paying. Both matter because they each play a role in how much money you'll have to live on in retirement.

If you believe you're paying too much in fees, or the fund seems to consistently deliver poor returns, a number of options are available.

The majority of workers have the freedom to select their own super fund, and it's a step worth taking. By accepting the default fund chosen by your employer, you're letting the boss select the investment that could shape the quality of your senior years. In my books, that doesn't make sense as it's your money, and the best person to make decisions about your money is you.

The fees charged by super funds vary widely and if you reckon you're paying too much, it could pay to switch to a different fund.

When it comes to returns, take a look at the investment option your super is invested in. 'Conservative' or cash-based options have little or no access to sharemarket returns. This may mean less fluctuation in fund returns between years but over time your nest egg is likely to earn lower overall returns than a balanced or 'growth' option.

Selecting the right super fund is a key decision for your financial independence and it's an area where your financial advisor can help you make the most appropriate choice. Or check out the superannuation section of the government's Money Smart website (www.moneysmart.gov.au) for more ideas on how to compare between funds.

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.



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