1. What should you consider before comparing superannuation funds?
The first step in choosing a super fund is to understand your financial situation and objectives. That includes decisions like when you plan to retire and how much investment risk you’re willing to take.
It’s important to consider:
- Risk appetite – how much risk are you comfortable with or willing to take on?
- Investment strategy – does the fund offer options that align with your financial objectives and personal investment preferences?
- Preferred level of involvement – do you want to actively manage your super and make investment choices, or leave it to someone else?
- Future needs – when will you retire, and how much will you need in retirement?
- Online access and features – does the super fund have an online app or portal and what other online features are available?
Answering these questions will help you decide which features and benefits are important to you in a super fund.
2. What is the super fund’s investment performance?
A key consideration when comparing super funds is investment performance. Put simply, this is how much is earned through investing your money in super. It’s important to remember past performance is not a reliable indicator of future performance.
Consider a difference of just 1% p.a. in investment performance. This can have a considerable impact on a superannuation account balance over time due to the power of compounding (this is where you earn interest on the amount you invest as well as past interest).
Suppose two people, Minh and Jennifer, both contribute $5,000 each year to their super accounts. Minh's account earns a 7% annual return, while Jennifer's account earns an 8% annual return. Both contribute for a period of 30 years.
After 30 years, Minh's account balance would be approximately $472,000, compared with Jennifer’s account balance of $566,000 - a difference of roughly $94,0001.
When considering performance, look for funds with a consistent track record of returns and compare the fees and costs to identify the net benefit or return. It’s important to compare investment options with a similar risk profile and investment timeframe to get an accurate assessment. When comparing superannuation performance, remember performance can fluctuate over time, depending on market conditions.
3. What are the annual superannuation fees and costs?
Superannuation fees vary between funds. These fees usually cover the costs associated with managing the account and investing your money. Understanding fees is important as they reduce your balance and can affect how much money you have in retirement.
Typical fees charged by super funds:
- Administration fees – fee for running the super fund which can be a fixed amount, a percentage of your super balance, or a combination
- Investment fees – cost of investing your super money, often a percentage
- Other fees – commonly include transaction fees (such as buy/sell spread to switch investments), withdrawal fee, and contribution fee
Investment fees could also depend on how your super is invested. Some super funds charge a range of additional fees, so it’s important to read through the Product Disclosure Statement to understand what fees are applicable.
MoneySmart has an online superannuation calculator to help you estimate how much super you will have when you retire and how fees can affect your final super balance.
4. What superannuation investment options does the fund provide?
Did you know as a super fund member, you can choose how your money is invested?
This choice can affect how your balance grows. If you don’t want to make your own decision, your super fund can make a choice for you (called a ‘default’ or ‘automatic’ investment).
Most super funds offer a range of investment options that means you can choose to invest your super according to your goals, values and needs. This is where understanding your risk appetite is important, and considering how long you have until retirement.
2Essential Super automatically invests your super money into a Lifestage investment option designed for your age. As you get older, investment needs change, along with your financial situation and attitude to risk. The Lifestage option recognises this where the investment mix is adjusted over time according to your age.
Types of super investment options
Common investment options include:
- Diversified options – provide members with a mix of investments (known as asset types) such as shares, fixed income, property and cash. These options are usually named ‘Growth’, ‘Balanced’ and ‘Conservative’ and these options will have different objectives, asset allocations, risk profiles and recommended investment timeframes
- Single-sector options – offer members a more selective approach to investing in specific asset types like shares or property
- Sustainable or responsible investing options – these options are managed with an additional screening process around environment, social and governance considerations. For example, the investments may exclude exposure to companies such as tobacco and weapon manufacturing
Some super funds will provide an extensive range of investment choices if you would like a high level of involvement in how your super is invested.
5. Does the super fund offer insurance cover?
Insurance in super can be a cost-effective way to make sure you have the protection you need. Super funds often offer life insurance cover options that can be a combination of:
- Death cover, also known as life insurance – pays in the event of a terminal illness or death
- Total and Permanent Disability (TPD) insurance – offers cover in case you’re injured or ill and may not work again
- Income protection insurance – covers some of your lost income if injury or illness means you temporarily can’t work
It’s important to assess whether you want insurance in superannuation as the premiums will be deducted from your super balance, and that the insurance offered suits your needs. Things to consider include the premium amount, eligibility criteria, level of cover you require, waiting periods and exclusions that apply.
Learn more about understanding insurance in super.
6. Where can you get help comparing super funds?
You can find all the information on a particular super fund in the Product Disclosure Statement (PDS) on the fund’s website.
Another way to compare super funds is via the APRA performance test. Under this test, super funds are assessed on performance outcomes against a range of benchmarks. Failure to meet APRA’s testing requirements results in immediate consequences for the fund. You can check your superannuation fund’s performance against the APRA performance test using the ATO’s YourSuper comparison tool.