Significant changes are forecast for the way that large super funds serve their members – beyond investing their savings. It’s worth thinking about what this may mean for you and your family’s personal finances.
The latest Superannuation Market Projections report – recently published by consultants and actuaries Rice Warner – forecasts that within the next 15 years, large super funds will:
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Provide widespread financial advice – intra-fund advice (simple general advice on choices within a super fund) and lower-cost comprehensive personal advice.
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Focus on families rather than individual members.
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Provide access to investments outside super using the same investment strategies of their super portfolios.
Rice Warner suggests that these non-super investments could be used to save for such medium-term expenses as home deposits and school fees.
The forecasts regarding providing financial advice to much more of the population, focusing on family super and offering non-super investments, appear to make much sense.
Financial advice
Quality financial advice can make a valuable contribution to an investor’s financial wellbeing, yet currently the use of financial planners is relatively low.
Rice Warner has estimated that value of acting on good advice can be worth many times its costs. (See Bridging the gap for advice, published November 2018.)
A recently-published research paper, How Australia Saves, a collaboration between Vanguard and three major funds – First State Super, Sunsuper and VicSuper – makes the point that only a small proportion of members use the advice offered through the three funds. (This research covered more than 2.3 million fund members in total.)
Family super
The targeting of families rather than individual members is similar to the approach taken by most self-managed super funds (SMSFs) today.
Almost 70 per cent of SMSFs have two members (typically spouses) while just 23 per cent have a single member, the tax office reports. In other words, the vast majority of SMSFs are family super funds.
A focus on families by large super funds should assist couples in particular to build, manage and plan their retirement savings in an efficient and co-ordinated way. (See Smarter spouse investing, Smart Investing, August 27, 2018, for a wider discussion on the benefits of taking a harmonised approach to family finances.)
The annual contribution caps and the indexed pension transfer cap provide a further incentive for couples to combine and co-ordinate their super savings efforts.
The indexed $1.6 million pension transfer cap is the maximum transferrable from an accumulation to a pension super account. And members with total super balances (in accumulation and pension accounts) greater or equal to the transfer cap can no longer make non-concessional (after-tax) contributions without overshooting the contributions cap.
Non-super investments
Some members of large super funds have reasons for holding some of their investments outside the super system. For instance, they may want to access to the savings before retirement or they might be restricted by the various contribution caps from putting more into super.
Yet many members may want their super funds to manage all of their super and non-super investments, perhaps favouring a super fund’s diversified portfolio with exposure in at least the main asset classes.
Please contact us on 0415 306 000 if we can be of assistance .
By Robin Bowerman, Head of Corporate Affairs at Vanguard.
Reproduced with permission of Vanguard Investments Australia Ltd
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