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 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 invest some time in thinking about what you need in a fund and then 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, which will be a fund you have chosen in the past or the default fund one of your previous employers used for you. If you don’t have a stapled fund, your employer will pay contributions to their current default. 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 the market for any major purchase, be it a car or a super fund, 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.
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It’s important to start by thinking about what kind of investment you want for your super. Without knowing which investment option to use in your comparison, you can’t begin. The last thing you want is to compare based on the default investment, realise later another option is more suited to you, and have to start over.
Check with your current fund to find out the option you are in and consider whether it is right for you. You may be in the fund’s default Balanced or MySuper option where most Australians are invested. Or you may have chosen a High Growth, Growth, Conservative, Capital Stable or Sustainable pre-mixed option. Perhaps you’ve even chosen a mixture 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. Find out more about whether an SMSF could be right for you.
An increasing number of Australians, particularly younger members, want the ability to choose a sustainable or socially responsible option, or a fund that takes ESG (environmental, social and governance) issues into account in all investment decisions. 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 Product Disclosure Statement (PDS) so you know what it does and doesn’t offer. Also check investment performance for the option you’ve decided is right for you 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 choose ASX-listed investments directly.
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.
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 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 funds’ own benchmarks. This will tell you if the investment managers are meeting or exceeding their goals or falling short. For this, you can refer to the funds’ most recent annual report. Find the investment section, look for your chosen option, and you should find a graph showing the actual return versus the benchmark.
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/or 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.
Superannuation 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.
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There are plenty of low-cost 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.
Do be aware though that insurance premiums inside super are paid from your account, so there is less money earning a return. This may be a price you are willing to pay if you don’t have enough free cash flow to pay premiums outside super, or you may want to make additional super contributions to fund the cost.
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 your 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 if and when you choose to close the 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 potentially confusing. If you’re having difficulty, a comparison service might be worth a look. There are a few options in this space:
- SuperGuide’s comparison tool: our partner RateCity provides data for a simple comparison based on investment performance and fees. Fee data is only available for Balanced investment options. We also publish lists of the best performing super funds, best performing pension funds, as well performance rankings for super funds and pension funds.
- Applecheck: This service is provided by Chant West and available for free through many large super funds. Check with the funds you’re comparing to see if it is available on their websites or search online for Applecheck. This will compare up to three funds, including the fund you’re accessing it through. Applecheck provides a comprehensive report comparing returns, fees, insurance costs, and additional services. The comparison is tailored to calculate the correct fees for your balance and the cost of the insurance options you choose.
- Selecting Super: 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 has the added bonus of giving 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. Some may want a fund that offers free or low-cost financial advice and member information seminars. 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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