How to benchmark your super fund

For example, you may be in one of the fund’s pre-mixed options, such as its default Balanced or MySuper option, where most Australians are invested, or a lifecycle option which reduces exposure to higher risk assets as you age. Or you may have chosen a High Growth, Growth, Conservative, Capital Stable or Sustainable pre-mixed option.

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. Or you can go solo with your own self-managed superannuation fund (SMSF).

This article deals mainly with large super funds. You can find out how to benchmark your SMSF returns here.

Your statement should set out the returns you have earned, the growth in your balance over time, the fees you paid and the type and level of any insurance cover you hold.

It will also provide details of your beneficiaries – the person(s) you have chosen to inherit your super when you die, or your legal representative – and whether you have made a binding or non-binding nomination. A binding nomination offers more certainty that your super will end up in the right hands, but it must be updated every three years unless you have chosen a non-lapsing binding nomination.

Your fund’s website

Also, spend some time exploring your fund’s website. This is where you will find details of its investment options for members in accumulation phase (while you are still working and growing your savings) and retirement phase.

Most will offer educational material and perhaps help in picking the most appropriate investment option for someone with your risk tolerance and time frame. Some funds also have a risk profile tool.

Your fund’s website may also offer information in the form of seminars, webinars and calculators to estimate your retirement benefit, income in retirement or the potential benefit of a transition-to-retirement pension.

If you still have general questions about your super, look for ways to contact your fund by phone, email or online chat. General advice is typically free, while many funds also offer personal financial advice for a fee. Advice becomes increasingly important as you get closer to retirement.

Does your fund allow you to connect and transact in the way you prefer when you prefer? It’s a generalisation, but older members often prefer to get information via print, website or phone, while younger members like to connect and transact on the go via a mobile app or online chat.

How to benchmark your fund

The following is our four-step guide to assessing your super fund.

Step 1: Is your fund meeting its objectives and yours?

The first step is to see if your fund is meeting its own return targets and objectives. Just as importantly, does it reflect your risk profile, based on how many years you plan to remain in the option, the expected volatility of returns and the likelihood of a negative return in any one year?

These details should be set out on the fund’s website, where it outlines its investment options.

Below is the Balanced option example from Hostplus, which aligns with Chant West’s definition of Growth (61–80% growth assets).

Compare your fund’s targets with the actual returns reported on your annual statement. Returns will be shown for each year over the past three to five years, and on an annual compound basis, usually over three, five and ten years. Investment options with a longer track record may also include returns over 15 or 20 years.

Learn more about superannuation investment options in the following SuperGuide articles:

Step 2: Are the fees reasonable?

Most funds and comparison sites report investment returns after investment fees and tax (but before administration fees and other costs). This is important because it gives a closer approximation of the real return on your money than gross returns (before tax).

You can learn more about super fees in the following SuperGuide articles:

You need to burrow deep into your fund’s annual statement to piece together the total amount of fees and charges you pay, in percentage and dollar terms.

If you are in a MySuper product, your fund is required to display a ‘dashboard’ showing, among other things, the total dollar amount of fees for a member with a $50,000 super balance. This is a good starting point to compare fees between default funds, but you need to check the actual amount you paid on your balance.

Step 3: Does it offer the choices, services and benefits I need?

Returns are important, but they are not the only measure of a good super fund. If your fund doesn’t offer the investment choice, services or benefits you need, then it could be time to find one that does.

Many large funds these days allow you to invest directly in shares, ETFs and term deposits. If the ability to select your own investments is important to you, you might want to switch funds or run your own. If you want to hold real property inside super, then an SMSF is the only way to achieve this.

SMSFs also offer more flexibility when it comes to estate planning and the distribution of your super to your beneficiaries in the most tax-effective manner when you die.

Life insurance is another important benefit of super. Most members of public-offer and corporate funds receive some level of default cover that they may not even be aware of. Self-employed members need to apply for cover.

Your annual statement will tell you the type and level of insurance cover you have, as well as the total amount of premiums you paid over the past year.

The benefit of holding insurance inside super is that premiums are discounted and paid from your super account, so you don’t need to find the cash to pay them if your budget is tight, and you don’t need to have a medical check to qualify. The downside is that cover is often limited, payouts may be taxed and premiums coming out of contributions reduce your retirement savings.

If your existing type of level of insurance is not adequate or appropriate, then you can reduce it, top it up or ditch it for insurance cover outside super, which may be tax deductible.

Step 4: Should I switch funds?

If you have followed steps one to three and you’re not happy with your super returns, you have several options. Before you flick the switch, it’s worth getting back to investing basics.

The amount you have accumulated in super by the time you retire depends on three things: the amount you (and/or your employer) contribute, the returns on your investments and time.

If your fund is performing well but your balance is not growing quickly enough to meet your target retirement income, then you have several options:

• You could increase your contributions

• You could plan on working for a few more years before you retire. Not only will this give you more time to add to your balance, but it will also reduce the number of retirement years your nest egg needs to cover
• You might consider switching to an option with a higher risk and return profile. You can do this without changing funds, often with a simple click online or on your mobile.

For example, if you are in a default or Balanced option, you could move up the risk and return curve to a Growth or High Growth option. Many experts believe you should only consider this if you still have a decade or more until retirement and you are comfortable with high volatility and a higher likelihood of a negative return in any one year.

And finally, if your fund’s performance is consistently lacklustre or it doesn’t offer the services and benefits you need, then it may be time to consider switching funds.

The bottom line

Super is a long-term investment, but that doesn’t mean you have to stick with the same super investment option or the same fund for the entire journey if it no longer meets your needs or expectations. But neither should you jump ship after a single bad year or unhelpful phone call.

With something as important as your retirement savings, it pays to make careful, considered decisions.