Choosing a super fund is one of the most important choices you can make to secure your financial future — but many are happy to go with the flow.
If you’re anything like the majority of Australians, you probably have three superannuation funds you’ve been defaulted into when you start a new job.
The thing is, ever since a wave of reforms to the sector in the early 2010’s it’s never been easier to switch funds — all you need to do is fill in a form.
Some super providers make this even easier by just needing a tax file number to find all the disparate superannuation holdings you have (hoping to roll them all into their fund).
The changes to make rolling into a new fund easier was meant to spur a wave of competition for the hearts, minds, and wallets of Australian superannuation investors — but it hasn’t quite happened like that.
There’s been some consolidation in the sector, but if you were to ask anybody on the street to name multiple funds, they’d struggle to name more than one.
At the end of the day, they’re all kind of…the same.
So where do you begin in sorting the wheat from the chaff and making sure your retirement dollars are working as hard as possible?
A word of warning, we’re going to mention some specific superannuation funds but it shouldn’t be taken as an investment recommendation. If you’re in the market for a new superannuation fund, please do research beyond this article.
1. The investment performance
This is where the rubber meets the road for any superannuation fund — how hard are they making your money work?
There are a few places where you can go to get fund-level data on who’s been investing wisely and who’s bet it all on black and lost.
The first port of call is the regulator, APRA (or the Australian Prudential Regulatory Authority) which regularly reports on all sorts of things around superannuation. If you like spreadsheets, its website is a hoot.
Every year it puts together a whole stack of data at the fund level about how the fund did over the previous year. There’s usually a long lead time, because there’s a lot of data to collect.
It puts together ‘whole of fund’ performance over one, five, and ten year horizons. Note, this doesn’t include every investment option within those funds.
So you can dig through the APRA numbers, or you can rely on consumer websites such as Canstar which usually offer more user-friendly options for comparing performance.
Grr, fees. The bane of every share investor’s life. Superannuation is no different.
Usually fund-level returns are reported in net return, but some may report the headline investment performance figure and not the figure minus the fees they charge you for the privilege of investing your money.
Generally speaking, a low-risk profile fund (which expects to deliver a smaller but less volatile returns) charges lower fees — as it usually doesn’t take a lot of time and energy to hold bonds.
But here are some of the fees to look out for:
- Investment fees
- Advice fees
- Administration fees
- Insurance premiums (more on this later)
- Exit fees
Comparing fees across the market can be difficult, and again for all the data you can head to APRA — but the best bet is to do a bit of digging through individual fund’s Product Disclosure Statement (PDS) to see what you are paying in fees and what you might pay if you switched.
3. The investment rationale
Increasingly, people want to know that their money isn’t going toward funding coal mines or chopping down trees in Orangutan habitats.
A whole new wave of superannuation funds has sprung up aiming to cater for the socially and ethically conscientious investor, such as Australian Ethical.
However, aside from ethical considerations, funds offer different investment options for different types of investors.
If you do nothing, you’ll be defaulted into a MySuper account which is low-fee and low-risk by default.
However, there are more aggressive investment options which weigh more into shares for those building wealth — and higher weightings towards bonds and cash for those approaching drawdown age.
Did you know that superannuation accounts came with insurance? Because most don’t.
Funds can come with permanent disability insurance or life insurance as default, and there are a couple of reasons for this.
The first is that it allows the super company to take a clip on fees paid by members to maintain this insurance — but for that clip members get the benefit of bulk buying.
The superannuation fund can usually buy the policies in bulk, meaning it’s ultimately cheaper for the member than if they went out and found the insurance for themselves.
You can usually find out about what insurance you get automatically by having a look at the PDS or member statements — and there are options for cancelling or increasing your coverage depending on what you want.
5. Ancillary member services
You know how you can get cheaper movie tickets because you’re with a certain phone company? This behaviour is slowly making its way into the superannuation space.
Because it’s now easier to switch funds than ever before, super funds are attempting to add a whole lot of window dressing in an attempt to bag 9.5 percent of your paycheque.
Because most people don’t switch super funds, so far this activity has been pretty muted.
It’s usually in the ‘free* financial advice’ area, but for example Hostplus periodically offers free sporting tickets thanks to its sponsorship of the Gold Coast Suns.
This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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