Just got mail from your super fund? You should read it



Comments Off on Just got mail from your super fund? You should read it

It’s the time of the year when annual statements from super funds for the year to June 30, 2017, are sent out. It you haven’t yet received your statement you should be receiving it soon.
SuZhou Night Recruitment

This year, more than any other, it’s important for fund members to check their statements.

That’s because there have been significant changes for up to 1 million fund members who have been shifted to another type of default option that’s very different to the option they were in.

All employer super payments already have to be going to a fund that is MySuper-compliant. But mid-2017 was the deadline by which all accumulated savings had to be moved and most funds switched their members well before the deadline.

MySuper-compliance applies to the default investment options and ensures a set of consumer safeguards for those fund members, the vast majority, who don’t choose their super fund.

One of those safeguards sees a welcome end of what was a fees rip-off. This was where a fee was charged for financial advice, despite the fund member never receiving any advice.

For not-for-profit funds, such as industry funds, which have never paid advice commissions, their standard default investment options, with the odd exception, have remained as their MySuper-compliant default options.

For the vast majority of industry fund members who are in their funds’ default options, nothing has changed.

But most retail funds, such as those run by the banks and insurers, have made life-stage or life-cycle options, which are MySuper compliant, their default options.

Up to 1 million members of mostly retail super funds been switched to this new type of investment option.

Some fund members will be with the options on the recommendation of their financial planner, where presumably the benefits will have been explained to them.

Many others will have been shifted without them having to do anything. They will have been notified by their funds, but they probably didn’t give too much thought to it at the time.

Life-cycle options are very different to the standard balanced options, which have a fairly static asset allocations and whose returns are easily comparable to each other.

With life-cycle options, fund members are grouped into cohorts depending on birth decade. The asset allocation is set aggressively when the age cohort is young and then becomes progressively more conservative as the cohort ages.

As most of these life-cycle options are new, there is little track record and the changing asset allocation makes them difficult, if not impossible, to compare to each other and to the standard default offerings.

I am not saying that life-cycle options are necessary bad, though I am sceptical about whether they are going to leave fund members better off than the standard balanced investment options.

While past performance is no guarantee of future performance, the standard balanced options do have a good record of meeting their performance objectives.

Follow John Collett on Twitter.