In this guide
Superannuation is like any long-distance journey; you want to make sure you know where you are headed and how to reach it. That includes finding a vehicle that’s fit for purpose. Otherwise, you could end up short of funds and unable to enjoy your destination – retirement.
Whether you are choosing your first super fund, consolidating two or more funds into one, or wanting to switch to something better, it pays to think about what you need in a fund before comparing what’s on offer.
Most people these days can choose their fund, unless you happen to be an employee in a defined benefit fund or covered by an older industrial agreement. If you don’t choose a fund, your employer will pay your Super Guarantee (SG) contributions into your ‘stapled’ fund, that is, one you chose in the past or the default fund one of your previous employers used for you. If you don’t have a stapled fund and don’t choose a fund, your employer will pay contributions to their current default fund. You may be lucky and end up in a high-performing fund, but unless you verify this is the case, what you don’t know could be very costly.
The following steps are designed to guide you through the process of comparing and choosing a fund that will get you where you want to go.
1. Know what you want
Before you start comparing funds, it’s important to think about what you want. Otherwise, you could end up paying for expensive extras you don’t need. Or you could sign up for a product that lacks the features you do need.
Check with your current fund to find out the option you are in and consider whether it’s right for you. You may be in the fund’s default Balanced or MySuper option, where most Australians are invested. Some funds have a lifecycle default, which reduces risk as you age. Or you may have chosen a High Growth, Growth, Conservative, Capital Stable or Sustainable pre-mixed option. Or, perhaps you have a mix of single-sector options like Australian Shares or Listed Property.
For those who like a little more control, or who feel they could do a better job themselves, many big funds also offer direct investments in shares, exchange-traded funds (ETFs) and term deposits. If you are interested in taking full control of your super, a self-managed super fund (SMSF) may be more your speed.
More Australians, particularly younger members, want the ability to choose a sustainable or socially responsible option, especially now that their returns are competitive with other options. It’s not all about investments and returns. Do you want a fund with a good insurance offering, the ability to monitor and transact from your mobile, or free or low-cost advice?
2. Explore your options
If you are already in a fund, check its website or the product disclosure statement (PDS) for your investment option so you know what it does and doesn’t offer. Also check investment performance over three, five, seven and ten years as well as the fund’s fee structure.
Collect the same information from other super funds you already have an account with that you want to compare. Then, if you wish, go online to come up with a shortlist of other funds you would like to compare.
Not sure where to start? Read on to find links to SuperGuide’s listings of top-performing funds or, if there is a particular feature you’re looking for, try using a search engine to locate funds that offer it. For example, you might search ‘super direct investment’ if you’re looking for a fund that offers you the option to invest directly in ASX-listed shares.
3. Compare performance history
Past performance is no guarantee of future returns, but you can have more confidence in a fund with a track record of above-average returns over at least five years, and preferably longer.
When checking performance, make sure to compare like with like. The investment options you’re comparing should have a similar weighting to growth assets. Be aware that even if options have similar names, they might have a very different mix of growth versus defensive assets. The fund’s website or investment guide contains the information you need about the split.
You may also wish to assess how the investment option you’ve chosen is performing against the fund’s own benchmarks. This will tell you if the investment managers are meeting or exceeding their goals or falling short. You can find this information on each fund’s website.
For example, AustralianSuper (the country’s biggest super fund) benchmarks its default Balanced option against the SR50, or the median return of the top 50 Balanced options tracked by SuperRatings. If AustralianSuper’s balanced return is higher than the SR50 median return, that means it has performed better than half of the top 50 Balanced funds. Anything lower would put you in the bottom 50% of funds.
- Best performing super funds: All Growth category (96–100%)
- Best performing super funds: High Growth category (81–95%)
- Best performing super funds: Growth category (61–80%)
- Best performing super funds: Balanced category (41–60%)
- Best performing super funds: Conservative category (21–40%)
- Top performing sustainable super funds
4. Add up the costs
Small differences in fees can add up to a big dent in returns over the life of your super. The amount of money available to you in retirement will depend on the amount you and your employer contribute, plus your investment returns less fees and tax. It’s not uncommon for people to spend a great deal of time chasing returns or trying to minimise tax, while fees fly under the radar.
Super funds are required to disclose their total fees and charges in their product disclosure statement (PDS) and your annual statement. These include an administration fee to cover the costs of managing the fund and your account, investment fees to cover the cost of managing your investments and performance fees where applicable. Check if there is a fee for advice and if you are getting what you pay for.
There are plenty of low-cost funds, often index funds, with total annual fees well below 1% of your account balance, but fees should never be looked at in isolation. Funds with a lot of money in property and private equity, for example, tend to have higher costs than funds with mostly cash and bonds. The trade-off for higher risk and costs ought to be higher returns in the long run, but don’t assume this is the case. Check it out.
5. Don’t forget insurance
Taking out insurance cover inside your super fund can be very cost effective because funds are able to negotiate group rates. Many funds offer life insurance, total and permanent disability (TPD) and income protection at competitive rates.
It’s sensible to consider the level and type of insurance cover you want in your super and work out what it would cost with each fund you’re considering. If investment performance and fees are similar, the cost of insurance could be a deciding factor in choosing a fund.
You can find insurance costs in the insurance guide available on the fund’s website. Their contact centre may also be able to help you calculate the price of your chosen level of cover.
You’re likely to have some existing insurance with your super, which will be cancelled when you close an existing account. If you have health conditions that may make qualifying for cover in your new fund difficult, investigate whether the new fund can accept a transfer of the insurance from your previous fund. If this is an option, you need to take it up before closing the account that has cover.
6. Having trouble? Consider a comparison service
Comparing investment performance, fees and insurance can be time-consuming and confusing. That’s where a comparison service can be helpful. You have a few options in this space:
- SuperGuide: We publish lists of the best performing super funds, best performing pension funds, as well as performance rankings for super funds and pension funds.
- Apple Check: This service is provided by Chant West and is available for free through many large super funds. For example, Aware Super offers free access to compare Aware Super with two other funds of your choice. Check with the funds you’re comparing to see if they’re available on their websites. The comparison is tailored to calculate the correct fees for your balance, the right option for your age, and the cost of the insurance options you choose.
- Selecting Super (operated by Rainmaker Information): A SelectingSuper Report card compares two funds, including investment performance, fees, insurance and extra services. A report costs $69.
7. Follow your leads
Once you’ve identified the front runner (or perhaps your two top funds), it’s time to probe deeper. Browse their website and call or use online chat to ask questions. Contacting a fund will also give you an insight into their customer service.
At this stage, you might also want to check for other services and benefits that are important to you. If you are close to retirement, you may want a fund that offers free or low-cost financial advice and educational seminars or online webinars. Others may prioritise a user-friendly app or great digital calculators and projection tools.
If you decide to switch or consolidate two or more funds, you first need to join the fund you have chosen – if you’re not already a member. Then you can consolidate your accounts into your chosen fund by logging in to your myGov account. If you can’t access myGov, the fund you’ve chosen will be happy to arrange the transfer for you. You will need to fill in a rollover form for each fund you want to move across.
Comparing and choosing funds is now easier than ever, thanks to the amount of information online. Happy hunting!
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