Free to Choose: Why it's so important to engage with your super
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In 1980 Nobel Prize winning economist Milton Friedman and his wife Rose D. Friedman released the acclaimed book “Free to Choose: A Personal Statement”.
Written during the context of the Cold War and the great inflation of the 1970s and early 1980s, the book champions the free market. It asserts that the free market works best for all members of society and denounces government policies that reduce personal freedoms, create inefficiency and distort outcomes.
The underpinning philosophies can be applied to the Australian super system. While our super system is robust, it’s far from efficient. And if we apply the ideas in ‘Free to Choose’, they go a long way to explaining the weaknesses in the Australian super system.
For that matter, they go a long way to explaining why it’s so important that everyday Australians exercise their free choice, engage more with their financial decisions, and hold their financial services providers accountable.
Our retirement system is a good one
Let’s start with an acknowledgement. There’s no doubt that Australia’s retirement system is world class. According to the Natixis Global Retirement Index (GRI), Australia ranked sixth in the world in 2018 when considering retirement finances, material well-being, overall quality of life and health factors.
Further, when it comes to the GRI’s ‘retirement finances’ measure, our system rates fourth in the world.
Our compulsory super system is an important part of this success. With almost 10% of every employees’ income deferred and redirected to super, it’s also an important part of the Australian economy. The super system now sits at $2.9 trillion and it’s still growing.
And it’s important at a personal level as well. For most of us, our super is the second largest asset behind our family home, and for a younger generation locked out of the housing market, super is their largest asset.
So, whose money is it anyway?
But the trouble is most of us don’t see our super as our money. With more than 80% of APRA regulated super funds invested in a default account, it’s clear that most of us don’t take enough interest in our super.
That means we don’t engage with our super as our own money. And we’re paying a high price for it.
Neglect and complacency have led to wasted money
According to the recent Australian Productivity Commission report on the efficiency and competitiveness of super, in 2018 there were around 10 million zombie unintended multiple super accounts being eroded by $2.6 billion annually in unnecessary fees.
That waste stems from our default super system. That’s a system set up and protected by government. It’s a system that unapologetically prioritises the business models of super funds, not their members. It’s a system that causes an increasingly mobile workforce to duplicate accounts every time they start a new job.
That $2.6 billion is real money paid by everyday Australians each year to super funds and insurance companies. Those same companies have been charged with a legal and moral obligation to act in your best interests. So, the question is, are they?
Always back self-interest
Legendary NSW premier Jack Lang said it best: “In the race of life, always back self-interest. At least you know it’s trying.”
What’s clear is that no super fund cares about how well your money is managed as much as you do. You can’t trust a financial institution to consistently prioritise your interests over theirs.
Self-interest is the human condition. So, like Milton Friedman purported, the answer is to make self-interest work for you.
You can do that by looking out for yourself. You just need someone by your side to help you know what to look out for.
You’re free to choose your own super provider. It’s time to empower yourself, engage with your super, hold your super fund accountable and exercise your free choice.
At When Financial Solutions we’re not tied to any super funds. We’re self-employed and free to serve you. We can partner with you to help you make better financial decisions.
So, it won’t be a matter of ‘if’ you’ll achieve what’s most important to you, but ‘when’.
Michael Bowman and James McMaster are co-founders of When Financial Solutions