Future Focus: What you're getting wrong about super
The numbers behind what works and what doesn’t
Superannuation is one of the most generous tax structures available to Australian investors. On a relative basis super is more attractive given the proposed changes to capital gains taxation on assets held outside super.
Despite its widespread use and the high percentage of their assets the average Australian holds in super it remains misunderstood.
This lack of understanding is causing many Australians to make decisions that lead to subpar outcomes. Here are some of the most common misconceptions Australians have about superannuation, and why they matter.
Assuming the default option is the best option for you
When you enter a superfund you are automatically placed in the default option unless you have specifically chosen otherwise. The ‘balanced’ option is the most common default.
These pre-set options are called ‘multi-asset funds’ and typically contain multiple asset classes such as Australian and International Equities, Fixed Income, Listed and Unlisted Property, Alternatives and Cash.
Each fund mandates a range dictating how much of your portfolio will be allocated to each asset class. For example, AustralianSuper’s Balanced option can hold a range of Aussie shares between 10 and 45% - it currently holds 24.9%.
A balanced fund with Rest Super can hold between 11-21% Australian shares – it targets 16%. Then – you look at QSuper’s Balanced option – they’ve got 25.5% in Aussie equities.
You are never certain what you are going to get unless you look under the hood.
Asset allocation is important. It could mean the difference between having a comfortable retirement, or not. An example is illustrative.
For the purpose of this example, I am using Morningstar’s asset allocation models. They use future expected returns to set asset allocation instead of past performance.
Say that I am 35, with $100,000 in my superannuation. I am retiring in 30 years, contributing $2,000 a month to super for the rest of my career. Inflation is 2.8% p.a.
Below are the outcomes based on Morningstar’s portfolio models.
While the differences in outcomes are profound, making changes to asset allocation requires little effort. No extra contributions are required, and you don’t have to work longer for higher retirement balances.
All that is required is a considered decision about what asset allocation works best for you to reach your retirement goals. Making the right decision could mean hundreds of thousands more in retirement savings.
That industry super is a ‘cheap’ option
Many assume that these default funds will be a ‘cheap’ option. The AustralianSuper Balanced fund holds $259 billion of assets from the 90% of AustralianSuper members who have chosen that option. Each of those members are charged 0.67% p.a. of assets plus $52 a year.
This is not an insignificant amount. A $100,000 balance with $1,200 in contributions a month over 30 years, a 7% p.a. return and compare 0.67% p.a. fee to 0.20%. The fee difference is over $200,000 over 30 years.
Fees should never be the sole decider of what investment option or provider you choose, but they should be one of the main deciders. Superannuation is a long-term investment that grows over decades. Fees compound over this time and meaningfully reduce the amount you have in retirement.
Thinking the tax benefits are only for the wealthy
Superannuation tax concessions often become part of broader debates about wealth inequality, leading some Australians to assume they are only useful for high-income earners.
In reality, the benefits apply across a wide range of income levels.
The median worker who salary sacrifices modest amounts into super still receives a meaningful tax advantage compared with investing outside the system. The concessional contribution cap allows eligible Australians to direct pre-tax income into an environment where earnings are taxed more favourably than investments held personally.
The benefits of these tax concessions compound over time. Saving 15% on tax means a larger contribution that compounds over decades. These earnings also compound. It is a snowball that grows meaningfully with time.
The tax benefits are larger as income rises but that doesn’t mean they are valuable for every Australian.
Focusing on returns while ignoring contributions
Much of the conversation about super revolves around investment performance.
Which fund delivered the highest return? Which option outperformed the market? Which manager picked the best shares?
Returns matter, but many Australians overestimate their importance relative to contributions.
For someone early in their career the amount being contributed often has a greater impact on their eventual balance than small differences in annual performance.
Consider two investors with identical portfolios. The investor consistently making additional contributions may end up significantly wealthier than the investor who spends years chasing marginally better returns. Instead of contributing $1,000 a month, $1,100 a month is the equivalent of a 10% return.
The most powerful lever available to many Australians is not finding a better fund, but increasing the amount being invested. This is especially true for younger investors that have decades for their contributions to compound. Contributions are less impactful for older Australians with large balances, where a difference in performance can have an outsized impact.
Assuming more choice automatically leads to better outcomes
The rise of self-managed super funds and expanded investment menus has given Australians more control than ever. While choice can be valuable, it is not always beneficial.
Many investors overestimate their ability to improve outcomes through constant portfolio adjustments, market timing, or stock selection. Research consistently shows that investor behaviour often detracts from returns. Chasing recent winners, reacting to market volatility, and making emotional decisions can damage long-term performance.
For many Australians, a simple, cheap diversified portfolio that is maintained consistently may produce better outcomes than a complex strategy requiring constant intervention. Sometimes the hardest part of investing is doing less.
Final thoughts
The most successful super investors are rarely those who discover a secret strategy or identify the perfect fund. More often, they are the people who engage early, contribute consistently, keep costs reasonable, and allow compounding to do the heavy lifting.
Superannuation is not perfect. The rules change frequently as governments tinker with policy. Yet, it remains one of the most effective vehicles for building long-term wealth. Understanding how super can work for you can make a large difference in what your retirement looks like.
Invest Your Way
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