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Everyone asks themselves from time to time whether their super fund is performing and what its current performance means for their retirement plans.
If you believe your super fund is not performing as well as you had hoped, or as well as other super funds, what can you do?
Here’s SuperGuide’s 5-step guide to help you assess whether your super fund’s investment performance is staying with the pack – or lagging the field.
Step 1: Check if your super fund is part of the problem
The first step in working out if your super fund is performing is to compare it to how other super funds have performed over the same period. According to superannuation rating agency, Chant West, the investment return for the median Growth super fund for 2018/19 was 7%, with the top performing Growth funds achieving a 9.9% return.
You would expect a similar result within a reasonable range for the Balanced or Growth investment option for all large super funds, which is where most members have their retirement savings. Super funds are regularly rated against their peers by ratings agencies, so check how your fund measures up.
For more about investment returns and comparable fund performance, read these SuperGuide articles:
- Best performing super funds over the last calendar year (to December 2019)
- Best performing super funds over the last financial year (to June 2019)
- Best performing super funds over 5 years (to September 2019)
- Best performing pension funds over 5 years (to September 2019)
- Best performing super funds over 10 calendar years (to December 2019)
- Best performing super funds over 10 financial years (to June 2019)
- Super fund performance over 27 calendar years (to December 2019)
- Super fund performance over 27 financial years (to June 2019)
- Asset sector performance: Returns over 1 to 15 calendar years (to December 2019)
- Asset sector performance: Returns over 1 to 15 financial years (to June 2019)
- Annual super fund performance Reckoner: Annual returns for 5 investment categories
Step 2: Review your investment option
Around 80% of Australians with a super account have their money invested in their super fund’s default investment option, which is where you are placed if you do not choose an investment option. Default options are usually Balanced or Growth investment options (see table below) and normally have around 60–80% in growth assets such as shares and property.
Default options are designed as an appropriate investment strategy for a large number of members across the many years they will be saving for their retirement. However, it may not be the right option for your particular circumstances.
If you’re unhappy with your super account’s investment return, it’s important to understand how your money is invested. Most funds offer both pre-mixed investment options and options based on a specific asset class like Australian shares, property, cash or fixed interest.
Investment options for large super funds
| Pre-mixed investment options | |||
|---|---|---|---|
| Option type | Common option names | What they invest in | Percentage of growth assets (e.g. Australian and international shares) |
| High Growth | High Growth, Aggressive, Growth Plus, Shares Plus | Mainly growth-style assets, usually Australian and international shares | 91–100% |
| Growth | Growth, High Growth, Assertive | Majority growth assets, with small amounts of cash and fixed interest | 77–90% |
| Balanced | Default, Balanced Growth | High allocation to shares, emphasis on long-term growth | 60–76% |
| Conservative Balanced | Conservative Balanced, Moderate Growth | Higher allocations to fixed interest and cash than shares | 41–59% |
| Capital Stable | Conservative, Stable Growth, Capital Guarded | High allocation to fixed interest and cash | 20–40% |
| Secure | Capital Guaranteed, Capital Secure, Cash Enhanced | Emphasises fixed interest and cash, focussing on stability rather than growth | 0–19% |
| Asset class options | |||
| Option name | What they invest in | ||
| Australian shares | Companies listed on the Australian Securities Exchange | ||
| International shares | Companies listed on global share markets | ||
| Property | Australian and overseas property | ||
| Fixed interest | Australian and international bonds and loans | ||
| Cash | Short-term market securities and short-term bonds | ||
| Member choice or DIY option | |||
| Member chooses and manages their own investment portfolio | Available assets vary, but usually include companies on the ASX, exchange traded funds (ETFs) and term deposits | ||
Source: Table compiled by author and reflects typical options offered by many large super funds
Step 3: Learn about the objective for your investment option
Just as every super fund gives each investment option a different name, each investment option has a different objective. When reviewing your investment option, think about whether its investment objective and level of risk are appropriate for you. Two examples from different super funds are:
Balanced option
- Objective – To beat Consumer Price Index (inflation) by 4% over the medium to longer term
- Likelihood of negative annual return – 5 years in 20-year period
- Risk level – Medium to high
Conservative option
- Objective – Deliver after tax return of inflation plus 1.75% over rolling 10-year periods
- Likelihood of negative annual returns – 1 year in 20-year period
- Risk level – Low to medium
For more about investment options, read SuperGuide articles:
- How to change your investment option: 6 points to check before you switch
- Super investing: How to choose a responsible investment option
- How to choose an investment option for your pension
- What are listed and unlisted investments and why does it matter?
- How investing in infrastructure boosts your super account
- Annual super fund performance Reckoner: Annual returns for 5 investment categories
Step 4: Compare investment performance against the objective
The next step is to review the performance of your investment option against its investment objective.
Super funds regularly report each option’s investment performance against its objective, which is usually expressed in terms of a benchmark. Investment performance is also tracked by the ratings agencies, which will compare each investment option against a common benchmark and rank your option’s performance against similar investment options in other super funds.
For tips on how to compare super funds, read SuperGuide articles:
Step 5: Consider your alternatives if you’re unhappy
Armed with all this knowledge, you can now work out whether the problem is your fund, whether your super fund is performing on par with other super funds or if investment markets have had a good or bad year in general.
It’s worth remembering that if you select a lower risk investment option – or an asset class like cash or fixed interest – your investment returns will normally be lower than a higher-risk investment option. When it comes to investing, lower risk generally goes hand-in-hand with lower returns.
As you can’t change the performance of investment markets, some alternatives you may need to consider include:
- Accept more investment risk: Achieving a higher investment return may mean you need to take on more investment risk by investing in more growth-style assets, or by selecting an investment objective involving a higher level of short and medium-term risk. For more on understanding your risk tolerance, read SuperGuide article How to grow your super: Know your risk profile.
- Change your investment option: Shifting your money out of the default option into another investment option within your existing super fund could make a significant difference, depending on your investment option. An option with a different asset allocation may deliver a higher return – but also more risk. For more on switching options, read SuperGuide article How to change your investment option: 6 points to check before you switch.
- Change to a DIY portfolio: If you believe you can do better than your super fund’s professional investment managers, consider moving some or all your retirement savings into a DIY or member choice option within your super fund. This allows you to select your own investments and build a tailored portfolio. The most active DIY option is to start a SMSF, although this comes with significant compliance responsibility as well as investment control. For more information, read SuperGuide’s special section on SMSFs (Self-managed super funds).
- Contribute more to super: For people still saving for their retirement, this is probably the easiest option. Adding extra personal contributions to those made by your employer can help offset lower investment returns. For more, read SuperGuide’s special section on Making superannuation contributions.
- Work a few extra years: For those close to retirement, low investment returns may mean you need to stay in the workforce longer. Toiling away for a few extra years is tough, but it may be the only option if your retirement pot still needs to grow. For more information, check SuperGuide’s special section on Planning for retirement.
For more on how much super you need, see the following SuperGuide articles:
- How much super do I need to retire?
- Super to income Reckoner
- Income from super Reckoner
- How much super do I need to retire on $60,000 a year?
- How much super do I need to retire on $80,000 a year?
- How much super do I need to retire on $100,000 a year?
- Is $500,000 in super enough to retire on?
- Is $750,000 in super enough to retire on?
- Is $1 million in super enough to retire on?
- Is $1.6 million in super enough to retire on?
- Is $2 million in super enough to retire on?
- Video: How to use the MoneySmart Retirement Planner
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