Superannuation is all about setting yourself up for a comfortable retirement. It is highly likely that when you first started your career, you were nominated a super fund by your employer who started to contribute the mandatory superannuation contributions on your behalf.
Since the Royal Commission into Banking and Financial Services, superannuation and its performance has been put in the spotlight. At Tribel, we recently published an article about poor performing superannuation funds off the back of APRA releasing the results from the inaugural MySuper Product Performance Test introduced as part of the Government’s Your Future, Your Super reforms.
This recent scrutiny of superannuation products has definitely prompted Australians to investigate their superannuation and decide if it is the right option for them.
While employees in Australia have the option of choosing their own super fund, making the decision about which one to go with can be tricky if you don’t know what to look out for.
The result is often indecision. That could mean you end up with multiple superannuation accounts because employees often go along with the employer’s default superannuation fund each time they change jobs.
You have three main options when it comes to where your superannuation is paid into:
- Stay with the super fund you already have.
- Go with your employer’s choice or recommended fund.
- Choose a different fund altogether.
Superannuation is one of life’s bigger investments, most likely your biggest asset outside of the family home. You want to be able to trust who manages your money. But with so many funds and ways to go about it, things can become overwhelming.
Spending time to get an understanding of the choices available to you will help you choose the right fund for your situation. Because after all, you want to make sure you accumulate enough savings to fund your life in retirement.
The earlier you start planning for your retirement the better. But the further from retirement you are, the harder it is to think about or know what you want.
Choosing the right superannuation fund for your own personal situation is a great place to start, regardless of how far along the work life journey you are.
Here are a few tips to make the process a little easier.
What types of superannuation funds are there?
There are a number of different types of superannuation funds, however, for the broader public, there are three main types you can choose from irrespective of where you work:
- Industry funds
These are run by industry groups and employer associations. They are considered as “not for profit” since there are no shareholders. While they used to be only be available to workers in certain industries, they are now mostly open to anyone. - Retail funds
These are typically run by financial institutions and investment companies. They are run for profit so there is a commercial angle to how the fund is operated. Retail funds are open to the public and can vary in the range of fund options and services on offer. - Self-managed super funds (SMSF)
Those who want to operate their own superannuation fund may opt for a SMSF. They provide greater flexibility on what you can invest in but there is more responsibility and generally require a minimum account balance to be cost effective.
What to look for in a super fund
Not all superannuation funds are created equal. It’s worth taking some time to do a bit of homework to discover which fund is right for you.
Discussing your options and what’s best for you with an expert can help make your decision easier. A good advisor should spend time with you to understand your personal situation and goals.
But they should also explain things to you clearly, so you can understand. Regardless, having some knowledge of what type of fund will suit you best will help ease the overwhelm of choosing.
There are a few key elements to consider:
Past performance
While part performance may not necessarily be a reliable indicator of future performance, it does provide some insight into the quality of the investment manager in comparison to other managers of similar investments. Look at how your fund has performed over the last few years versus their stated benchmark. Keep in mind there are different investment options within a fund, so compare those that are similar. You can also now refer to the MySuper Product Performance Test to see which ones are up to scratch.
Fees
Superannuation funds charge fees. But what the fees are, can differ wildly. They can either be a set amount or a percentage. And be sure to find out what the fees are if you choose to switch to a different fund.
Insurance cover
Superannuation funds have insurance cover for their members, typically Life Insurance, Total and Permanent Disability and possibly Income Protection. You pay a premium for these insurances which is usually taken out of your contributions. Take the time to compare how much you’ll be covered for, the terms of the insurance cover as well as what the premiums are.
Investment options
Most superannuation funds have different investment options for you to choose from. You can choose to invest conservatively, or opt for high growth assets.
Investment options fall into categories such as:
- High growth
- Growth
- Balanced
- Conservative
- Cash
Some funds provide access to specific investments including responsible investments that follow ESG principles.
It makes sense to choose the type of investment to suit the situation you’re in now. Building your personal wealth for retirement is the goal, so the investment options should match where you currently are in your plan for the future.
Service
Service is hard to quantify but it’s something you experience in dealing with a superannuation fund. Things to consider here are:
- Can you access your account balance online or via a mobile app?
- If you have a query or want to undertake some transactions, is the fund easy to deal with?
- Is there a history of administrative errors on the part of the fund where there are delays in processing transactions, incorrect pricing and your instructions being implemented incorrectly?
A superannuation fund that does not have proper processes and systems in place can be frustrating to deal with and should be avoided.
Australian Prudential Regulation Authority (APRA) report
For the first time in July 2021, APRA produced the inaugural MySuper Product Performance Test as part of the Government’s Your Future, Your Super reforms.
It assessed the annual performance of almost 80 MySuper products. The result is a much easier way to know if your super fund is a poor performer. Not only can you quickly find out how your existing fund is doing, you can also see which funds are performing the best.
YourSuper Comparison Tool
YourSuper comparison tool was introduced around the same time. The tool lets you compare MySuper products and it’s designed to help you choose a super fund that meets your needs.
Understanding your appetite for risk
As we’ve discussed, most super funds have varying investment options to choose from. The good news is most super funds offer options to suit your current needs and objectives.
Each option offers a different level of volatility. Generally speaking the higher the volatility, the greater the risk. But if things go positively you’ll potentially see your money grow a lot more.
When you’re younger and you don’t need access to your superannuation money any time soon, you may want to try a more volatile option. But if retirement is looming, a more conservative approach, to protect your retirement money, is probably more suitable.
Compare the different investment options available through the fund you like to find one that suits your appetite for risk and growth. And seek advice from a trusted financial advisor.
Get help to choose the right super fund
Tribel Advisory helps you plan for life beyond work. Having a good plan as early as possible will let you choose and live life in retirement on your own terms.
Our financial advisers work with you to get you retirement ready and map out the best path for your circumstances, from work into life beyond. As people are living longer, it’s crucial your accumulated savings is enough to fund your retirement for an extended period of time. Having a helping hand from a professional to choose the right superannuation fund is important.
Get in touch to find out how they can make the process as simple and smooth as possible to give you the financial security and prosperity you want in retirement.
