14 Feb Get in early, for compound growth on super
Australians put off thinking about superannuation because they are more focused on near-term goals, but breaking that barrier of disengagement is crucial to ensure a comfortable retirement, says Melinda Howes, general manager of superannuation at BT Financial Group.
“Because we’ve got a compulsory system, people just think, ‘Oh, that’s something my employer does; it’s already taken care of, it comes out of my salary’,” Ms Howes told a recent Sky News Business/The Australian Money Talks panel. “It’s almost thought of as a tax rather than this is my money, this is my future salary.”
Taking care of super early on is especially important for women, who are already at a disadvantage due to broken work patterns and the gender pay gap.
Financial Services Council chief executive Sally Loan said women needed to think of super not as something you needed when you were old and retired, but as a salary that would sustain you in that third phase of your life. “You’ve got to engage with it from the start,” she said.
“I would say to young women, ‘It’s your money, you make the choice about which fund to put it in.’ You wouldn’t let your boss choose a bank for you, or hand over the keys of your car so he or she could drive it around for you, so why would you let your boss make the choice of your super fund? It just doesn’t make sense.
“It’s really just understanding it — don’t default to ambivalence. Seize the power because it’s yours to grow.
“It’s really important to explain compound interest to young people; if they haven’t done maths for their HSC explain that to them and just make sure that they do engage, because the (gender) wage gap starts in the 20s for women and that turns into a massive super gender gap by the time they retire. It’s just not on.”
James Kirby, Wealth editor at The Australian, pointed out that the super catch-up concession program announced in the May budget — which comes into force on July 1 — was aimed at promoting super to women and allowed them to “catch up” on super contributions.
“Say you were off work for one reason or another — typically somebody’s off when they’re raising small children and they’ve decided to take maternity leave, or maybe if you had two in quick succession you might be off for a couple of years. You can put in five times the annual limit from July 1. That’s the super catch-up concession. It’s for men and women, but it’s certainly a breakthrough for women in super,” he said.
Kirby said super could capture the imagination of people who were strategic and liked to plan, adding “9.5 per cent of your salary every week, every month, is going off to this box called super, but you can do what you like with it”.
“You can move it from one fund to another. You can, say, put it in an environmental and ethical fund, you can take it out completely and learn to run it yourself.”
One way of getting younger people more engaged was to talk to them about something that was interesting to them now, such as property, Ms Howes said.
She said BT’s wealth review online tool was a way for people to get a picture of their wealth situation. It would give them a kind of report that showed where they needed to pay a bit more attention, she said.
“Once you know what your budget is and get your daily expenses under control, that’s what our customers say is their biggest need — not just in their 20s and 30s, but in their 40s as well,” she said. “Then you can start having a conversation around making some changes to create a bit extra to put into an investment or a super fund,” she said.
Kirby agreed. “If you just put in a little more (each month) you won’t notice it, but you’ll certainly notice it in 30 years when it’s compounding, you hope, at 5 per cent a year, at least.”