How Do I Pick A Super Fund?
When my daughter was younger, she jumped around from job to job - various cafes, bars and reception gigs.
When I finally got her to sit down and sort out her superannuation, she had accumulated a variety of different super funds. Some employees had opened one on her behalf, and she did not know how to consolidate, or how to choose the right one for her.
I imagine many of you may have once been in the same situation, or have children who are too. Your needs may also change based on your financial goals, so I decided to write a guide to help you choose the right super fund - no matter what stage of life you are in.
It’s an important topic, and one that does require careful consideration. The superfund you choose may not only determine how much money you have to retire with, but where your super fund invests your money should also reflect your values and your appetite for risk.
So here are some questions I would encourage you to consider - your answers will help you to narrow down and pick the right super fund for you and your family.
1. What type of superfund do I choose?
Some employers let you choose your own fund, however it’s worth checking whether there are additional benefits from choosing a particular type of fund. You should check this with your employer.
You can find a summary of the different types of superfunds below.
Type of fund
MySuper - Default funds you are placed into if you don't choose a fund. They offer lower fees and simple features
Retail fund - These are usually run by banks or investment companies and often have a large number of investment options. The company that owns the fund aims to retain some profit.
Industry fund - Industry super funds were predominantly developed by trade unions to provide for their members in retirement. They usually have a smaller number of investment options and are 'not for profit' funds, which means profits are put back into the fund for the benefit of all members.
Public sector fund - These funds are mostly for federal and state government workers. Some employers contribute more than the 9.5 per cent minimum. Profits are put back into the fund for the benefit of members.
Corporate fund - This is a fund arranged by an employer for its employees. Some are run under a board of trustees or may be included as a separate part of a large retail or industry super fund.
Self-managed super fund - This is when you manage your own super privately. Each fund can have up to six members and are responsible for decisions made about the fund. Set up costs and annual running expenses can be high, so it's most cost-effective if you have a large balance.
Defined benefit fund - Typically they are public sector funds and many are now closed to new members. The value of your retirement benefit is calculated on how long you have worked for your employer and your salary when you retire, among other factors. Some of these funds are very generous.
Source: ASIC
2. What is the performance of the superfund?
Once you have narrowed down the types of superfunds that may be right for you, you should next consider their performance.
Obviously you want a superfund that has been performing well, and you want to take a long term view. You can use comparison websites to compare the different performance of various superfunds. I have included a list of these comparison websites at the end of the article.
Comparing performance can be tricky, as it can depend on the investment options of various superfunds, which leads us to our next question.
3. How do I want my superfund to invest my money?
As outlined in this handy ABC guide, there are essentially three types of investment options:
A 'growth' option usually has the highest return, but the highest risk. It invests most of your money in shares or property
A 'balanced' option has slightly fewer investments in shares and property and a little bit in fixed interest or cash-based investments. It aims for reasonable returns, but less than growth funds to reduce the risk of losses
A 'conservative' option has more of your money in fixed interest and less in riskier growth investments than the other options. It aims to reduce the risk of losses and therefore may have lower returns over the long term
More conservative options have a lower risk but lower returns, and a higher growth option will have a higher risk and usually higher returns over the long term. So doing your research and understanding how the superfund invests is crucial when comparing performance.
Typically when people are younger, they might be more willing to invest in growth options, and if you're close to retirement you might be lower-risk or more conservative. Make sure you decide what investment philosophy suits your current situation, and are comparing apples for apples in superfunds.
You may also want to look at exactly what investments your superfund is making. As more people become environmentally and socially conscious, you may want to ensure that your superfund’s investment philosophy aligns with your ethics and values.
4. What are the superfund’s fees?
All superfunds charge a fee. They may be a dollar value or a percentage of your balance. Be sure to look at what fees you will be charged and how much they will impact your balance over time. You can see an example of the types of fees below:
Types of fees
Administration fee - This fee covers the cost of operating the fund and is usually a flat dollar-based fee
Investment fee - Fees for managing your investment, which can vary depending on which investment option you choose. It's usually a percentage based fee
Indirect costs - This is for costs your super fund pays to external providers (like investment managers)
Advice fees - Fees for personal advice provided about your super
Switching fees - Fees for changing your investment option within the fund
Buy/sell spread fee - You may pay this every time you make a transaction such as making a contribution, switching and withdrawing
Insurance premium - This is for the cost of insurance provided through your super fund
Exit fees - A fee for leaving the fund. These fees were banned as of July 1, 2019
Activity-based fees - Only charged if the fund provides you with a particular service. For example, a family law split fee is charged for splitting your super following a separation
Source: ASIC
5. What insurance options does the superfund have?
Finally, insurance is offered as part of most superfunds and many Australians get their life cover this way. It is usually cheaper than buying it outside of super, but be sure to look at the product disclosure statements to ensure you are adequately covered.
There are usually three types of insurance included as part of super:
Life insurance
Total and permanent disability cover
Income protection cover
ASIC's MoneySmart has a calculator to work out how much coverage you actually need.
6. How do I compare superfunds?
You can use the ATO's YourSuper comparison tool to help you compare the questions and features of the superfunds that we have mentioned above.
One of the sites below may also help you compare super funds:
A word of warning though - comparison websites can be useful, but sites and businesses like these may make money through promoted links. See what to keep in mind when using comparison websites.
To help you make a decision about whether to switch funds and which product to switch to, you can always contact one of our financial advisors and we would be happy to help you identify your needs and support you through the process.
This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate considering your particular objectives, financial situation and needs.
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