Most people sign up to the superannuation fund chosen by their employer. But you can choose to switch to another fund, so it’s worth shopping around to check you’re getting a good deal.
Chances are you already have a super fund. However, if you’re thinking of switching funds, it’s a good idea to ensure your super is in a high-performing, low-fee fund. This can have a huge impact on the quality of your retirement.
There are four main things you should consider when comparing super funds:
1. Fees
As your super fund is an investment service, you have to pay super fund fees for investing and managing your money. All super funds charge fees – these may include an administration fee and an investment fee. They may be displayed as a dollar amount, as a percentage figure, or as both.
You’ll want to aim for lower fees, unless your fund is providing you with something that justifies the higher fees. As a general rule, aim to keep your total super fees under one per cent per annum, but be sure to work out what your total super fees are.
As a guide, CANSTAR found that the super funds on their database charge on average between 0.91 per cent and 1.21 per cent each year in fees.
A one per cent difference in fees may not seem like a huge amount, but over time and as your super balance grows, these can really add up.
2. Investment options
Unless you’ve chosen an option yourself, your money is likely invested into something called the MySuper option. This is usually made up of 70-80 per cent growth investments (shares and property) and 20-30 per cent defensive investments (bonds and cash).
You can choose to change your investment mix to something other than the default option.
It’s worth noting that super fund options aren’t standardised and ‘balanced’: one fund may hold a very different percentage of defensive assets than another balanced fund. So when comparing funds, make sure to compare apples with apples, and not apples with oranges.
You should be able to pick from investment options based on risk – for example:
- cash
- conservative
- balanced
- growth
- high growth.
Some funds also offer ethical investment options.
Your age and predicted retirement age will largely influence which option you choose and the level of risk you take on. As you won’t be able to access your super until you retire or reach preservation age, you might have 10 to 40 years before you can withdraw money from super, depending on your current age.
Before changing your super investments or super fund, make sure you’ve done your research. If you chop and change, there can be additional fees payable (called buy-sell spreads), and there may also be tax implications, not to mention the potential loss of insurance.
Natasha Etschmann and Ana Kresina share lots of finance tips in their book How to not work forever.
3. Investment performance
Compare your super fund’s investment performance over a five-year period, or longer (remember, you’re investing for the long-term).
Attempting to predict which super fund will outperform in the future is as challenging as choosing individual stocks to beat the market. The takeaway? Choose a super fund that’s currently performing well, but make sure to check how they are performing each year. If they start underperforming, it might be time to consider making a change.
If you want to check how your super fund is comparing, you can use the superannuation heatmaps created by the Australian Prudential Regulation Authority (APRA). The aim of these heatmaps is to increase the transparency around super product offerings and their performance. You’ll find another useful tool on Industry Super Australia’s website. It provides tailored comparisons for each person’s circumstance, taking into consideration fees, returns and insurance, among other things.
It’s also important to remember that just because a fund has performed well previously, this doesn’t mean it will continue to do so in the future.
4. Insurance within super
There are three main types of insurance available that you can acquire within super or personally (outside super):
- Life insurance – paid as a lump-sum payment upon death. There’s also the option of receiving a payment in the event of a terminal illness.
- Total and permanent disability (TPD) insurance – paid as a lump-sum payment. The requirements are that you must be fully disabled and unable to look after yourself or ever work again. This cover is cheaper, but has a higher threshold to claim. Note: There are different definitions of what it means to be totally and permanently disabled, depending on the provider and type of job.
- Income protection – paid as a regular income to replace your salary. This cover generally insures up to 70 per cent of your income and usually includes a waiting and benefit period before you can access it.
For many people, insurance through your super can often be cheaper, because it’s bought in bulk for lots of people at once.
But, there’s a big difference: if you use super for insurance, it means you’ll have less money saved up for when you retire, because you’re using some of it now. With non-super insurance, you pay from your pocket, so your super savings won’t be touched. There are pros and cons with both options.
If you’re looking to review your current superannuation fund or switch to a new fund, hopefully these tips will be helpful in knowing which questions to ask and other factors you should consider.
This is an edited extract from the book How to not work forever by Natasha Etschmann and Ana Kresina, available now at all leading retailers.
Disclaimer: Any information here is general in nature and has been prepared without considering your personal goals, financial situation, or needs. Because of this, before acting on the general advice, you should consider its appropriateness, having regard to your unique situation. You should obtain and review the Product Disclosure Statement (PDS) and Target Market Determination (TMD) relevant to the product before making any financial product decisions. It’s also strongly encouraged to seek the advice of a professional financial adviser.