Choosing a Super Fund
Assuming that you have complete freedom to choose your superannuation fund, and are not limited by contract or industrial agreement to utilising an employer fund, then there are a number of considerations you need to bear in mind when choosing a fund. We focus on what we regard as the three most important factors below:
1. Investment Flexibility
The first criteria you need to consider is whether you value investment flexibility, and if the superannuation fund you are considering provides you with the flexibility you require. You need to appreciate that flexibility will normally come at a cost, and you can't expect that a low-cost MySuper pension funds will offer "bells and whistles". If you are happy to sit in what is called a balanced fund, often the "default option" in many superannuation funds, then you should expect lower fees - and if you are currently sitting in a fund with an "awesome array" of investment options which you don't use, you should question whether you and the fund are a "good fit".
At the other end of the spectrum, if you absolutely require flexibility, and part of your investment options include residential or commercial real estate, then you have little or no option but to set up a Self Managed Superannuation Fund (SMSF) or Small APRA Fund (SAF).
Just remember that moving your superannuation to another fund, or "rolling over" your fund, is typically not difficult unless it requires winding up your SMSF - and you will often be assisted by the (new) receiving fund. You shouldn't do it too often, unless you are aggregating your funds, but nor should you necessarily leave your funds in a superannuation account for long periods of time without reviewing whether you and the superannuation fund remain a "good fit".
2. Investment Performance
No surprises for guessing that while the concept of investment performance is an easy one to understand, it's how much your fund earns for you over certain period of time, but in practice it's not always easy to make comparisons. Luckily, there are now a wide range of websites that assist with making comparisons between various superannuation funds, although they may take a slightly different approach to assessing performance. We have provided a list of those websites below, but have made a few introductory comments below:
- Firstly, we believe that it is investment performance after fees and expenses that is a crucial comparison point - and that the focus should not necessarily be on short term performance - closely review the funds medium and long-term performance.
- Secondly, superannuation funds now offer a very wide range of investment choices, and for that reason you will find investment performance segmented into section such as, balanced funds, fixed interest funds, growth, Australian equities etc., etc., so ensure that any comparison is made on an "apples v. apples" basis. Even within "balanced funds" the relative performamce may differ because funds differ in terms of their exposure towards higher growth and more volatile investments.
- Thirdly, remember the "risk versus return" mantra - high-risk investment options will typically return higher rewards over time, but volatility will also be high and you need to ensure that investments match your risk profile.
Some examples of websites comparing the performance of superannuation funds include -
Because the sites sometimes adopt very different approaches to rating super funds and it will often be useful for you to compare funds across all the sites.
3. Super Fund Fees
The level of fees charged is an important factor - it's something you can influence through careful choice and in simple terms it materially and directly impacts the super balance you have available in retirement - the lower the fees the higher the amount available for investment which, in turn, increases your super balance at retirement. However, it's not the only determinant and the concern is always that low fees translate into poor or inadequate customer service.
In terms of current overall fee levels, to quote the draft Productivity Commission report on Superannuation of May, 2018, "Fees have fallen markedly for retail funds (to 1.5 per cent on average) but, with the exception of MySuper products, remain higher than fees for industry funds (which have not substantially changed, at 0.9 per cent)." Our current view is that you should look very carefully at any fund where your fees exceed 1% of your investment balance.
The main types of fees charged are the following - and they should be clearly displayed on the super fund's website - if not, look for another fund:
Super funds will typically charge all members a membership fee, usually quoted on a weekly basis – and varying between $1 and $5 per week.
This is a fee charged by the super fund for managing your super account, to cover the cost of administration, including sending out regular account statements.
Management or Investment Management Fees (or "MER")
These are fees associated with managing your particular investments and they will typically vary depending upon which particular investment options you select.
Sometimes these are included within MER (above), but some funds separately show performance fees paid to fund managers who exceed agreed performance targets
These are usually charged when a contribution is made to your super account, to cover the cost of administering these payments
Adviser Service Fees
These are fees personal advice received in relation to your super and other investments, and these can sometimes be included within contribution fees. Note that advisers can may also receive commissions for certain investments recommended to you, and these should be the subject of "crystal-clear" discussions between you and your adviser.
There are also a less common range of fees that you should be aware of before committing to a fund - and you should be wary of any fund with complex or numerous fees unless the complexity is a reflection of your circumstances or investment choices. These "secondary fees" can include:
Establishment Fees - a charge for initially setting up your account
Withdrawal or Termination fees - fees charged when you withdraw or rollover your funds
Investment Switching Fees - fees charged when you change your investment options within your account
Contribution Splitting Fees - charged when you split off some of your contributions to your spouse's super account
Issuer Fees - fees charged by an investment issuer for overseeing the fund.
Expense Recovery Fees - "out-of-pocket" expenses that a trustee is entitled to recover from your super account, and
Family Law Split Fee - fees charged to split your super following a separation and associated family court order
Binding Nomination Fee - a fee payable if you wish to make a binding death benefit nomination