More Concerns About Superannuation


Hi all

I have written about Superannuation previously so I will not be covering any of that ground again. However I have new concerns about Super - concerns that  Australians need to be more broadly aware of. 

Importantly, I'm not a financial adviser and am just sharing this information to pique your interest in an important topic - please do your own thorough research on the matter.

I'll keep it brief - here goes:-

This time I want to flag two very specific issues that even savvy investors may not be aware of when it comes to Superannuation.

1. Some Superannuation companies keep extra of your money for Capital Gains Tax

Essentially many Superannuation providers take extra money out of pooled funds to cater for future CGT in addition to the normal 15% tax inside Super. This set-aside money (our money) is therefore not growing and is dragging the potential performance of our Super portfolios down.

Many Super companies are very opaque or even silent about this fact. Often that money is never recouped by us, although some Super providers give a token amount back once our Super goes into pension mode. 

If you want to read about this in detail, then please have a look at this write-up - click here.

Pat the Shuffler's article (and indeed his series of articles on Superannuation) is a fabulous informative read.

2. Superannuation companies may not be investing your money how you ask them to.

Even though we can supposedly pick what type of investments we want inside our Supers, many Superannuation companies actually invest all our pooled money however they see fit and just track your superannuation virtually against the option you have chosen. You may not be actually invested directly into the option you have chosen at all.

Thus when the Super company makes a profit they pay you out your virtual share and keep the rest. Worst case scenario would be if their investments fail and they cannot pay us what our virtual accounts are owed (although given the opaqueness around this issue we'd probably never know for sure).

If you want to read about this in detail, please  have a look at this write-up - click here.

CaptainFi's write up on the subject is thoroughly researched and an excellent read.

To somewhat mitigate both these above concerns I use the Choiceplus platform inside Hostplus (It's not perfect, believe me!).  The Choiceplus platform is like a SMSF (self managed super fund) but without all the paperwork and hassle - Hostplus essentially does this administration on my behalf.

By using Choiceplus I get to invest 80% of my portfolio directly into funds and companies. This circumnavigates the very opaque treatment of future tax provisioning in pooled funds and ensures my investments are actually sitting where I elect them to be. It also gives me a full statement of earnings, dividends, distributions and tax treatment for each holding inside Choiceplus. This costs me a flat rate of $15 per month which I deem to be the cheapest SMSF I know of.

If you want to read an excellent write up on this approach using Choiceplus - click here. (Scroll to towards the bottom of that article).

Maybe you are just content to have your Super money pooled with others' money, having additional money of yours unknowingly set aside for future tax (which you may or may not get back) and being invested in a virtual or synthetic portfolio .... but I'm not content to have this happen to my Super. Nope.

Anyways, hopefully this is a useful call-out for some of you who are still accumulating inside Superannuation. Ha ha ..... you can't unknow all this now that you've read it!

Take care and stay nice



  1. [Please excuse the caps - I'm unable to use bold without a rich text editor. Feel free to change the caps to bold]

    I want to clarify that while super funds have downsides, not using super based on this is so much worse and will cost you so much more.

    If you are on the average 32.5% tax bracket (34.5% with the Medicare levy), then every dollar you put into super (up to the concessional contributions cap) will give you:
    1. An INSTANT, zero-risk return of 29.77% (100/65.5 * 85/100))
    2. Ongoing tax savings on all earnings for DECADES
    3. Added returns earned from the 29.77% from the initial tax savings for DECADES

    If you are on a higher marginal rate, the savings are even more pronounced.

    If you choose low-cost index-tracking options in super, the issues mentioned in the article are not going to remove those massive additional gains resulting from lower tax paid. It won't come anywhere near it. I would strongly urge you to put it into an excel sheet to see how enormous this is over many decades.

    I agree that super funds are frustratingly opaque, but to use the reasons mentioned in the article is missing the forest for the trees.

    What is actionable that you can do about:

    1. For balances under about 300-500k, use low-cost index options in super — I am talking about the individual index options, not the index "balanced" fund, which has 30% in defensive assets. Yes, these are pooled funds, but the high cost of using direct options (which I will get to in the next point) is going to cost more than what you save. Great options include SunSuper individual index options and HostPlus individual index options.

    2. Once you get up to the 300-500k range, you can go with direct options in super, which means you invest directly in actual ETFs through your super. These are obviously much clearer for what you invest in and my preferred method, and they have an additional benefit such that all your gains before you retire are completely wiped upon converting to an account-based pension. However, due to the higher fixed costs in these options, the percentage cost based on assets below about 300-500k make the cost disadvantageous.

    1. Thanks heaps for this PassiveInvesting Australia. I apologise if I in any way implied that readers should not use Super - this was not my intention.

      Everyone should make it their business to trawl through your entire website I think. It is a valuable and easily understood mine of information.


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