There are 24 million superannuation accounts in Australia, and more than 8 million weren’t chosen by the individual, rather chosen by their first employer, possibly as a 15-year-old landing their 1st job at McDonalds!
Why is this important?
Loyalty tax is the term used to describe the extra money long‑term customers end up paying simply because they stay with the same provider, whether super fund, bank, utility or any other ongoing service.
Super is a 40+ year investment for most people and will likely become your biggest and most important asset, beyond the family home, so it makes sense to review your super fund, so why do so many Australians stick with a super fund that under performs and overcharges fees?
For most people, it’s all too hard. You would first need to understand what makes a good and bad super fund, then call your current super fund, apply your rules then call at least 3 other super funds to compare. The opaque nature of in-built fee structures and investment allocations can make this even more challenging, as you aren’t comparing apples to apples.
The difficulty is not coincidence – super funds know you will try, procrastinate, then give up, convincing yourself that if your super fund can afford to sponsor sport stadiums, concert venues and prime time print, TV and online advertising, they must be ok. Spoiler – your fees pay for those things!
Thus, you keep paying the loyalty tax, year after year, compounding your losses.
How expensive is the loyalty tax?
Like any bad investment, the longer you stay, the worse it becomes. Conversely, the sooner you act, the faster your financial situation improves.
I met a young couple recently, early 30s, professional, mortgage and young kids. If they stick with their existing super funds, their forecasted balance at age 60 is approx. $7,600,000.
If they choose a better performing fund, with lower fees and improved investment performance, their estimated super balance at age 60 becomes $13,400,000.
That’s not a typo, nor is this a hugely complex strategy, rather the benefit of making a more informed choice, the benefits compounding, year after year.
If you aren’t sure that your current super fund is the right one for you, give me a call and let’s find out!
