If you had held $100,000 10 years ago in the highest-performing balanced super fund over the past decade that nest egg would have grown to $203,147 by August 2015, according to super fund researcher SuperRatings.
Yet if you had instead held the $100,000 in the lowest-performing super fund over the past decade that nest egg would just $137,349 today.
This breathtaking gap of $65,798 after fees and taxes truly underlines why the selection of your super fund and then close monitoring of that fund are critical.
And, of course, investment performance is only one of the key factors – along with fees insurance, quality of administration and member services – in selecting the right super fund for you.
Here are 14 tips for picking best fund for your circumstances:
1. Look at award winners
A straightforward way to identify a top all-round super fund in terms of performance, fees, and services is to look at the award winners.
SuperRatings, which compared more than 620 super funds to this month, named the $60-plus billion state government fund QSuper as its fund of the year, providing the “best value for money” in the accumulation and pension phases.
SuperRatings named the public-offer industry fund CareSuper as the top “choice” super fund for accumulating super savings. Six of the other finalists in the accumulation “choice” category were Equip, HOSTPLUS, Mine Wealth + Wellbeing, Plum Superannuation Fund, QSuper, Sunsuper, Telstra Super, UniSuper and VicSuper. (CareSuper was also named as the top MySuper fund for employees who don’t choose a fund.)
And, as later discussed, AustralianSuper was named as top retirement/pension fund.
2. Know the super funds the experts use
Most professional superannuation analysts would agree, at least off-the-record, that a solidly-performing, low-cost industry, corporate or government super fund is probably the most appropriate choice for most fund members – for both the saving and retirement phases.
One super fund research firm, which will remain unnamed, uses a heavyweight industry fund as the default for its employees who had not made a choice of fund. But not surprisingly for a super fund researcher, most employees have made their own choice.
All employees of another super fund research group exercise their right to choose a fund. They are members of a broad selection of industry and retail funds.
3. Consider investing in a range of super funds
A superannuation analyst told SmartCompany a few years ago he was a member of about six super funds. He picks the best features of different funds to put together what he believes is the best line-up for his circumstances.
Fund members are often advised by their own super funds and by the likes of ASIC to consolidate their super savings into a single fund to save costs. While this suggestion may be appropriate for members with low balances, many members would gain comfort and perhaps increase their opportunities by spreading their super between a few funds.
The most-common duplicated costs for being in more than one super fund are fixed-dollar fund administration fees of around $1.50 a week or $78 a year. Most charges borne by a member are for investment management based on a percentage of your superannuation assets – so this cost doesn’t generally change with the number of funds.
And it is also possible to opt out of insurance from some of your super funds to minimise costs.
One super fund researcher bluntly told SmartCompany: “I think it can be misleading to say that super fund members shouldn’t have multiple super funds because of costs. It’s bull.”
Perhaps, the main drawback of having multiple funds is the task of keeping track of their performance, costs and asset allocation. A fundamental principle of sound investment practice is to ensure that your overall investment portfolio is appropriately diversified for risk and returns.
Another super fund analyst told SmartCompany a few years ago he is a member of two super funds, a retail master trust and an industry fund. “I use my retail master trust to invest in opportunities that are unavailable on other platforms,” he explains. “It is a very high-risk portfolio but it is appropriate for me at my stage.”
Through the master trust, he invested in boutique fund managers specialising in small companies, resources and infrastructure. And his compulsory employer contributions were directed into the default option of an industry fund, which provided excellent death and income-protection insurance.
“The ideal is to have a single fund which accommodates your needs in terms of fees, investments and insurance,” says Steve Freeborn, head of client relationships for Rice Warner Actuaries.
“And it would be rare for a fund not to be able to find a fund to accommodate a member’s needs. However, it doesn’t mean that every fund accommodates all of somebody’s needs.”
Freeborn gives the example of a person who is attracted to a super fund because of its high-quality infrastructure investments but doesn’t like its other investment options. So it might be appropriate to invest their other super savings in another fund.
Another example is a member of, say, an employer-sponsored super fund that has negotiated an excellent group insurance deal for their members. Freeborn says the member might decide to leave enough in the employer fund to keep the account open but then to invest their super savings in a fund that better serves their other super requirements.
4. Choose the best of the best
Depending upon their personal circumstances, members who are thinking about spreading their super between different super funds might choose:
- Insurance: One fund to provide appropriate and highly-competitive insurance cover.
- Wide and flexible investment choice: A second super fund to hold your choice of investment funds and perhaps direct shares. (Commercial master trusts and superannuation wraps offer a wide choice of managed investment funds. And superannuation wrap investment platform also offer direct shares.)
- Low-cost balanced portfolio: A third super fund to gain access to a low-cost, strongly-performing balanced portfolio. A fund with highly competitive fees and strong performance over the long-term is best suited for this purpose.
Of course, some super funds offer an excellent combination of low costs, excellent insurance at a highly competitive price, sufficient investment choice for a member’s requirements and solid performance with a core balanced portfolio (if that’s sought).
5. Place a high value on quality, competitively-priced insurance
Insurance may be the primary reason for shopping around for another super fund. Perhaps your current fund may not offer competitive insurance cover or perhaps you want to double-up on your insurance cover.
Points to compare include: cost, availability of automatic acceptance (some funds allow members to have very large death/disability insurance cover without a medical) and waiting periods for income-protection insurance.
There is no point in having a 30-day waiting period for income-protection insurance if you have three months’ sick leave. A longer waiting period should mean lower premiums.
Which funds offer the best insurance deals? The best insurance cover for a particular member can much depend on the member’s circumstances. And it can really pay to shop around.
As an example of a super fund offering quality insurance cover, Alex Dunnin, director of research and editorial with the Rainmaker/SelectingSuper group, points toIntrust Super, a small industry fund specialising in hospitality, tourism and retail workers – as one that offers innovative insurance cover. Dunnin adds that Intrust also performs strongly.
6. Don’t mess up your insurance cover when swapping super funds
A common insurance trap can occur when you roll all of your super balance into another fund before checking whether your existing insurance cover is obtainable with the new fund for similar premiums.
This is particularly critical if you have an existing medical condition. The new fund might reject your insurance cover or apply high premium loadings.
“Get your insurance cover accepted in your new fund before you leave your old fund,” suggests Freeborn.
If necessary, you can keep a sufficient balance in the old fund to keep the insurance in place.
People who decide to switch most of their super savings from a large super fund to a self-managed fund often leave enough in the big fund to keep their existing group insurance cover.
7. Don’t overlook direct investment options of industry funds
A fund member wanting to choose direct local shares while not being interested in choosing investment managers may find that the direct investment options of such super funds as AustralianSuper and CareSuper satisfy their needs.
For instance, AustralianSuper’s Member Direct option enables members to invest in the S&P/ASX300, term deposits and exchanged traded funds (ETFs) in the accumulation and pension phases.
8. Monitor your super fund’s performance
Fund members should closely monitor the performance of their fund and be on the alert if its performance lags over the medium term. A simple way to compare performance is to study the performance tables of the super fund researchers SelectingSuper, SuperRatings and Chant West.
Alex Dunnin of Rainmaker/SelectingSuper suggests that members ideally look to funds that produce top quartile performance over three to five years. He says performance rankings “jump around” on a short-term basis so members should look beyond short-term returns.
If your super fund lags in the lower quartile for five years or so, you might well wonder if your long-term savings goals will be achieved.
“Our performance [along with contributions] will ultimately dictate the size of our nest egg and retirement date,” says Steve Freeborn of Rice Warner.
9. Count cost of high performance
As illustrated above, members who don’t track their fund’s performance could be throwing money away.
10. Don’t put up with poor fund administration
You may have heard some horrific stories about super fund administration gone wrong. Unfortunately, some of the experiences involve the administration services used by some of Australia’s biggest industry super funds.
For instance, SmartCompany knows of a self-employed member of one of the largest industry funds who gave notice to the fund, using its official form, of his intention to claim a $100,000 tax deduction for personal contributions. (At this time, concessional contributions up to this amount were allowed, depending on the member’s age.)
Instead of taking the correct action, the fund actually deducted the $100,000 from the member’s balance. It took the intervention of senior fund management to rectify the mistake.
The telephone help desk of another large industry fund could not provide a member with an accurate total for contributions over the 2014-15 financial year months after the financial year ended. And the information was not available on its website because of apparent technical issues.
Alex Dunnin of Rainmaker/SelectingSuper says such commercial super providers such as Macquarie and BT have put much effort into providing quality administration systems.
11. Compare funds – for nothing
Many super funds – including NGS Super, Sunsuper, AustralianSuper and First State Super – offer an online service, AppleCheck, from super fund researcher Chant West. This enables you to compare several funds at a time.
AppleCheck provides such information as: performance from one to 10 years, administration and investment management fees, insurance options and costs, and the quality of administration and member services.
12. Cut costs
Rice Warner’s recently-released latest report on superannuation fees for the Financial Services Council shows that members across all types of fund funds paid total average fees of 1.1% in 2013-14. (These are the fees paid on average balances.) The report highlights fee differences in different types of super funds.
These total average fees (covering fund administration, investment management and advice where applicable) for different super sectors include: corporate funds 0.64%; large corporate master trusts 0.86%; industry funds 0.96%; public-sector 0.80%; medium corporate master trusts 1.38%; personal super 1.64%; and self-managed super funds, 1.04%.
The vast majority of super savings covered in the Rice Warner report are in balanced portfolios.
Alex Dunnin of Rainmaker/SelectingSuper warns about focusing excessively on costs without taking enough consideration about other factors such as performance, insurance and members services.
Nevertheless, fund members should treat high fees as a handicap to their real investment returns.
13. Get the best pension deal
The quality of standard retirement and transition-to-retirement pensions offered by super funds is becoming increasingly important given the rapid ageing of the population. And competition between pension products is becomingly increasingly fierce as funds aim to keep members through their savings and pension phases.
Features to look for in pension phase include good underlying investment performance, competitive costs, flexibility and ease-of-use, and availability of in-house financial planning advice.
SuperRatings has named AustralianSuper as the top retirement/pension fund for 2015. The other finalists were Catholic Super Pension, Club Plus Allocated Pension, Mine Wealth + Wellbeing, OnePath OneAnswer Frontier Pension, QSuper, REST Allocated Pension, Sunsuper Income Account, Telstra Super and VicSuper.
14. Use a checklist of critical points when choosing a super fund
In the Australian Financial Planning Handbook, published by Thomson Reuters, specialist superannuation editor and writer Stuart Jones provides one of the most comprehensive checklists available for choosing a super fund.