Improve member engagement by addressing the five biggest misunderstandings of superannuation
The call centre of a superannuation fund is the best place to hear the biggest misunderstandings the members have about their super. Having spent many years working in member service centres, it occurred to me early on that even basic knowledge of the industry is mostly held only by those who work in superannuation.
Working in financial services can sometimes be an echo chamber where we hear, talk and think about member engagement in an abstract manner. It is essential that regulators, government and superannuation fund trustees focus on demystifying these basic misunderstandings to build trust and confidence in individual funds and the system. The general Australian population do not know much about what happens with the 9.5% their employer pays on top of their wages and there are five common misunderstandings of superannuation which I have come across again and again.
1. “What’s this ‘insurance premium’? I didn’t sign up for insurance!”
The single biggest thing that many members don’t realise is that it is entirely possible to have life, disability, and even income-protection insurance paid through your superannuation account.
In fact, so many members are unaware that if they decide not to choose their own fund (more on that later) and prefer that their employer enrol them in their default fund, most members are likely to be given a basic level of life and disability insurance as part of a group policy.
There are many benefits of obtaining insurance in this way. First and foremost, members don’t need to pay anything up front, with premiums deducted from superannuation account balance. Secondly, there is often no medical or other paperwork which needs to be completed: genuinely a big deal for a lot of members in this busy world.
2. “I’ve changed jobs, so I’d like the form to move my super to my new one.”
A common belief is that members have no control over where their superannuation goes; they believe that if they work for an employer, their super has to go to that employer’s default fund. Whilst there are still some exceptions from super funds themselves and the occasional employment contract, it’s generally possible for a member to choose their own super fund, even if they change employers and that employer uses a different fund.“Choice of Superannuation Funds” legislation states that a member has every right to choose which fund is right for them. While the idea of comparing funds may seem daunting, many websites and services exist to help. MoneySmart is a government incentive to help understand exactly what to look for, and even lists comparison websites.
3. “I really need to draw some funds out right now. It’s MY money, after all!”
Preservation is something that a lot of members misunderstand. Preservation, as we know, means that superannuation assets are generally locked away until earlier of the age of 65 or “preservation age” and retirement. This preservation age is 55 for anyone born before 1 July 1960, and starts going up one year at a time after that, currently capped at age 60.We all know that there are always exceptions though. Besides retiring, there are four main ways for Australian citizens to access their funds in times of need, although these methods are intentionally restricted:
- Compassionate grounds: if a member can prove that they need the money urgently for medical expenses, funeral expenses or mortgage assistance, they may be eligible to claim Compassionate Grounds through the Department of Human Services.
- Severe financial hardship: if a member can prove that they have been on certain government support payments for 26 consecutive weeks and that their income is less than their necessary expenditure, a member can possibly claim Severe Financial Hardship at the discretion of the Fund.
- Terminal illness or disability: In addition to any insured benefit, anybody who has been deemed as either terminally ill, or totally and permanently disabled, should contact their super fund to discuss a potential payout of their balance.
- Minimum account balance: need a new pair of shoes or dinner for two? If your entire superannuation account balance is under $200 and you will not be receiving any further contributions to that fund, you can claim your balance. There is no early-release tax on this method, but most funds require confirmation from your employer that there will be no more contributions.
Unfortunately, accessing your benefits for reasons like going backpacking (unless you’re a departing temporary resident), wanting to upgrade to a newer car, or just needing that new video game console simply don’t count, although I’ve had people try all three.
4. “You’re taxing my employer contributions too? Aren’t they already taxed?”
Many Australians still believe that they are being double taxed on their superannuation contributions. Assuming that a member’s TFN is provided, most employer contributions are not subject to PAYE income tax, and are only taxed at 15% rather than the standard progressive income tax rate.Additionally, many members are not aware that they can choose to voluntarily contribute on top of the standard 9.5%, which will help boost their available balance on retirement, and can possibly even lower their take-home income into a lesser tax bracket.
5. “But how can my balance go down?! I thought this was like a bank!”
While it may feel similar to many superannuation fund members, superannuation is not the same as a bank deposit; members’ money is invested. Many funds do offer a cash-based, or even a term-deposit style investment option, however the default investment option for most super funds is a balanced or growth portfolio. This is generally a complex mix of cash, term deposits, shares and property, and is subject to a similar fluctuation to the standard stock exchange and property market.It is important for members to be aware that superannuation is a long-term investment, and markets go through cyclical periods of rises and falls. Sometimes it can be better to ride out the fall and wait for the next rise, rather than change options and seal your losses.
It is essential that regulators, government and superannuation fund trustees have an open ear to some of these very simple but common misunderstandings. Superannuation can be complex, but ultimately there are basic points which can be focused on to build trust and confidence in individual funds and the system.
Business Solutions Consultant