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Superannuation is now a part of life for Australian workers, but it’s still a big deal – making the right choices can be worth hundreds of thousands of dollars when you retire. But how do you choose the best super fund for you? Learn the differences and how to compare between the best super funds with this comprehensive guide.
When you’re trying to compare super funds and pick the best one for you and your situation, it’s worth taking the time to do your homework and choose carefully. There are many things that set superannuation funds apart, and make them a good or bad choice. Many people focus on the fees and the performance of the fund, but it’s also worth weighing up secondary factors, like insurance and investment options.
Fees
One of the most significant factors to consider when comparing super funds is the fees they charge. These might seem like quite small numbers, but they can add up to significant amounts of money over your working life.
Funds can charge fees in different ways. Some have fees at a flat annual rate, some charge a proportion of your super balance every year and many have a mix of both. There can also be fees associated with certain actions you take – such as changing investment strategy, or using a financial advice service.
It’s worth knowing that the fees on your super can change depending on how much super you have in your account. If one fund charges $400 per annum as a flat fee, and another charges 0.5% of your super balance each year, the latter fund is a better choice when you’re starting out, but once you have more than $80,000 in your fund, the flat fee is the better choice. These sums get a little more complex when a fund charges a flat fee and a percentage.
When you compare super fund fees, it’s important to do the sums based on the amount of super you have. The numbers for someone else may be quite different.
Performance
A superfund grows your money through investments. Its job is to carefully invest the money you give it to make that amount grow over time. Returns will fluctuate from year to year – that's the nature of investments, and finance in general. For example, 2020 was generally a bad year for super funds, with most returns taking a dip. However, over the course of your working life, the amount in your super should be steadily growing – the bad years and the good years should average out to a steady increase in your super balance.
That’s not to say that all funds give the same returns, of course. Investment is quite an art form, and different funds will see different returns each year. The market can also be unpredictable, and strategies that work well one year might not do so the next. Part of the process of comparing super funds is looking at their performance over time – comparing how certain funds perform against each other over the last 5-10 years can give you a sense of which funds are performing consistently well, and which ones aren’t.
It’s definitely worth shopping around for a super fund with good performance. As you can see from the table below, even for a modest income, a 1%-2% difference in performance can mean a huge difference to your retirement income.
| Start Age | Retiring Age | Annual Income | Fund Performance | Retirement Balance | Balance Compared to 5% Return |
|---|---|---|---|---|---|
|
25 |
65 |
$50,000 |
5% |
$187,448 |
N/A |
|
25 |
65 |
$50,000 |
5.5% |
$204,810 |
+ $17,362 |
|
25 |
65 |
$50,000 |
6% |
$224,269 |
+ $36,821 |
|
25 |
65 |
$50,000 |
6.5% |
$246,104 |
+ $58,656 |
|
25 |
65 |
$50,000 |
7% |
$270,631 |
+ $83,183 |
|
25 |
65 |
$50,000 |
7.5% |
$298,213 |
+ $110,765 |
|
25 |
65 |
$50,000 |
8% |
$329,261 |
+ $141,813 |
|
25 |
65 |
$50,000 |
8.5% |
$364,241 |
+ $176,793 |
|
25 |
65 |
$50,000 |
9% |
$403,688 |
+ $216,240 |
(Source: https://moneysmart.gov.au/how-super-works/superannuation-calculator)
There are some important things to bear in mind when comparing the performance of different super funds, however. Firstly, when comparing one fund against another, remember not just to compare performance over a period of time, but make sure you’re comparing the same time period! Comparing the numbers from 2010-2014 for one fund against the 2015-2020 data for another won’t give you reliable information, for instance. Secondly, remember that a fund’s past performance is not a guarantee of how it will perform in future – investments don’t work like that. The best it gives you is an informed guess about which funds might perform well in future.
Insurance
Many funds have insurance packages built in, offering you options such as income protection, permanent disability and life insurance. Because superannuation funds can get group rates, these can be quite affordable.
Generally, insurance included with your super package is paid for out of your super balance, so part of your 9.5% super contribution goes to pay for the insurance. It is possible to make additional contributions to cover this, however, or to pay for the insurance more directly. This can be a good option if your super balance or your income is low (such as when you’re just entering the workforce) and you want to benefit from the insurance package without cutting into your super balance.
If you’re hoping to include insurance as part of your superannuation account, it’s worth carefully reading up on the policies offered by each fund and considering which ones suit your needs.
Investment Strategies
While super funds always want good returns for their members, there are different approaches to investing which can yield differing returns. Some funds go for high risk, high returns, while others go for more conservative strategies which yields lower results and reduced odds of a bad year or a change in the market significantly affecting your super balance. There are also lifecycle investment strategies, which generally involve starting off with a high-risk strategy in your early life to build up your super balance quickly, and then transitioning to a more conservative strategy later in life to protect what you’ve saved up.
Some common investment strategy options that you might have available for your super are:
If you consider yourself quite savvy with finance, you might opt for a choose-your-own investment strategy, giving you maximum control over your investments (without the considerable effort of managing your own super fund). You might prefer to leave investment strategy to the experts and elect for a MySuper account, which will generally only have a single, balanced option for investments – but can sometimes offer quite reasonable returns.
Lastly, many workers are now beginning to ask questions about how ethically their super is invested. Different funds have different approaches to this question, but some funds have ethical investment options, while others will have a specific focus on this area.
When you’re comparing different funds, it’s very important to compare similar types of investment strategy – growth with growth, balanced with balanced, etc. Comparing a growth account with a conservative one won’t give you very reliable information.
There are a number different kinds of super fund on the market, and which type you go with can make a difference to the return you get on your super – as well as having various other possibilities, like insurance, and investment options. The most common type is a retail fund – which anyone can join, but might not be the best value on the market. But there are other types of super fund that you might have access to.
Retail funds
These are the most common type of super fund on offer, representing about a third of the Australian superannuation market. Retail funds are often set up by banks or investment companies and may have a whole suite of financial products connected with them. In addition to features like income protection and life insurance (which are common options with superannuation funds), they might also come with financial advice services and the ability to view your super balance along with totals from your bank accounts – allowing you to take a big picture view of your finances.
The thing to remember is that retail funds are a business. Their aim is to make a profit, and thus some of the money earned by the fund will go toward that. So, while they might have great flexibility and options available, they won’t always have the best fees or highest returns.
Public sector funds
Public sector funds are set up and run by the government, and are generally only available to current or recent government employees, although this includes roles like nurses, teachers, and police officers. They don’t always have a lot of choice when it comes to investment strategies, but they can potentially have very low fees – they're not-for-profit, meaning more of the profits go to members.
Industry funds
Industry funds are set up to service a specific kind of industry sector, such as heath, media or energy. Some of the larger ones are open for anyone to become a member, but they’re generally focused on servicing their industry of choice and some are only open to employees working in that sector.
Like public sector funds, they’re generally not-for-profit – meaning the profits generally go back into the fund. That can mean lower rates, which can make them quite a decent option. They might not have as many options when it comes to investment and insurance as a retail fund, though.
Corporate funds
Corporate funds are generally set up by a specific corporation for the benefit of their own employees. Some are run by the company itself – under a board of trustees – while others are actually run by a retail or industry fund.
Corporate funds can vary widely in terms of options, fees and returns, but as a general rule those belonging to a very large company and operated by that company (rather than a retail fund) offer lower fees and more options. If you have a corporate super fund available to you, it’s worth looking into what it offers and comparing it to your other options.
Self-managed super funds
Self managed super funds (or SMSFs) are where an individual or small group have set up a fund to take responsibility for their own super. While a significant portion of the total super in Australia lies in SMSFs, they're generally only worth it for people with a larger than average amount of super.
Self-managed super funds don’t have fees in the normal sense, but there are large costs involved (thousands of dollars). Running a SMSF requires a lot of time (at least 100 hours a year) and a fair amount of knowledge about superannuation, tax, and how to manage investments . Unless you really know your way around finance, this is probably not an option you want to consider.
It’s also worth knowing that self-managed super funds are sometimes used illegally to access super funds before retirement. Sometimes this is done knowingly to try and work around the system, while in other cases it can be used as part of a scam promising people the opportunity to access their super early in exchange for some, or in some cases all, of the money. If anyone offers you the opportunity to access your super before retirement by rolling it over into a self-managed super fund, you should steer clear – and probably notify the ATO.
Under most circumstances, if you’re starting with a new super fund, you’ll be signing up for an accumulation account. These are pretty much the standard nowadays. An accumulation fund, like any super fund, grows based on investments. The better your fund’s investments are doing, the better returns you’ll see on your super. This also works in reverse – a bad investment, or a bad year in finance, can mean a hit on your super balance. This averages out over time, but there’s times that your super can give you less than ideal returns.
Defined benefit super accounts are a little different in that they offer a fixed return on your super – there's a guaranteed amount that your super will increase by which isn’t affected by market changes. You might not benefit as much from market highs, but you’re protected from stock market crashes and other financial challenges.
Defined benefit funds are becoming rarer, as they involve the fund taking on the risk of a bad year themselves – they need to pay you a certain amount regardless of how their investments did that year. They are still around though; some older superannuation accounts may be defined benefit, and some funds still offer them to certain customers. They’re often regarded as quite desirable – so if you’re in a defined benefit funds and you’re wondering about changing, you should get good advice before making the decision.
Admin / account management fees
This is the most basic type of fee (most super accounts have them), and it covers the basic management of the account – similar to an account keeping fee on a bank account. They be a flat annual amount (say, $500 a year) or a percentage of your super balance. Often, they have an element of both.
Investment fees
In addition to the admin fee, some funds charge a fee specifically for managing the investment of your super. This is generally a percentage of your super balance, or your investment earnings. In some funds this might simply be included in the admin fees.
Switching fees
When you switch investment strategies (from a growth strategy to a balanced one, for example), that can create some work for the super fund – they might need to sell off some shares and put some money in a term deposit, for example. As such, super funds will quite often charge a fee for making this change.
Advice fees
Many funds have extra services on offer, such as financial advice. Sometimes these services are provided freely, but other funds might charge a one-off fee to activate the service – or even a charge each time you use it.
Insurance premiums
If you use one of your fund’s insurance services – like income protection or life insurance – then this will generally be taken out of your super balance as a fee. To offset this, many people choose to contribute extra into their super to pay the insurance premiums – which has benefits at tax time.
It’s tax efficient
As your premiums can be taken out of your super balance, you can pay for life insurance by salary sacrificing, meaning you pay less tax.
It can be more affordable
Some super funds can negotiate group discounts for insurance, meaning the cost can be quite competitive. You may also be able to include products like income protection in the same policy.
You may not need a medical exam
Some funds have a default level of life insurance cover that doesn’t require a medical examination. This can be handy if your medical situation is more complicated than average.
Less retirement income
Unless you’re making additional contributions to super to cover the premiums, it means you’re cutting into your super account to pay for your life insurance – you're taking part of the 9.5% super contribution and using it for something else. That means you’ll have less money when you retire.
The coverage might be less than you want
The default cover for life insurance included with super can be lower than the average – often less than $200,000. You might want to think about how far that will go toward providing for your loved ones.
Less control
Upon your death, the control of your life insurance funds ultimately rests with the super fund trustee. This can mean you have less control about naming your beneficiary, and the time taken for a payout can take longer.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
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© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
