By Maria Bekiaris,
, July 2010
If retirement is a long way off, which superannuation fund your money is invested in may be the last thing on your mind. But if you’re the one of many Aussies who has a choice where their employer makes their super contributions it will pay to have a say in the matter. Having the wrong fund can really eat into your retirement savings.
Not everyone has a choice. Certain employees covered by industrial agreements and members of defined benefit funds don’t. But if you do, there are a number of factors to take into account when comparing superannuation funds.
Fees and costs: All funds charge fees but some will be more than others and you might be surprised what effect those fees will have on your super balance. For example if you pay an extra 1% each year in fees, you could lose up to 20% from your retirement benefit over 30 years.
The main fee to look out for is the management fee which is usually a percentage of your balance. Other fees include entry and exit fees, extra contribution fees, investment strategy switching fees and insurance premiums. All these should be listed in the product disclosure statement.
Industry super funds tend to be cheaper than their “retail super” counterparts because they don’t pay commissions and are not for profit. Examples of industry funds are AustralianSuper, CARE Super, HESTA and MTAA Super. If you are a member of a retail super fund though you may be able to claw back some of these commission fees if you use a rebate service provider such as YourShare or RefundEasy.
You can use the super calculator at
www.fido.gov.au to work out the effect of fees on your retirement stash.
Investment performance: Although you’ve probably heard the expression that past performance is no guarantee of future returns it’s still worth looking at how a fund has performed. If a fund is consistently bad you should probably steer clear.
Don’t just look at the fund’s one-year return – look at its performance over a longer period of five or seven years. The Australian Securities & Investments Commission (ASIC) says it’s important to try and use the same start and finish dates for each fund and make sure you’re comparing like with like. Don’t compare a balanced option with one that invests in international shares for example.
Investment options: Many funds let you choose the investment strategy for how your money is invested. If you’re especially interested in socially responsible investing for example, you may want to look for a fund that offers that option. You don’t have to choose and if you don’t your money is usually in the “default” option. This is often a balanced option and the returns can be lower than some of the alternatives. When choosing the option consider when you want to retire, how much money you’ll need to live in retirement, your attitude towards risk and whether diversification is important to you. As a general rule, if you’re young you can go for riskier options. As retirement nears you can get more conservative, although some experts argue with rising life expectancy this should no longer be the case.
Insurance: Many funds offer life and total and permanent disability cover up to a certain level but you may be able to opt to increase that level or take out income protection as well. The big advantage of having insurance through super is that it helps with cashflow. Your money is paid by your employer’s contribution and does not come out of the family budget. Another plus is that insurance within super tends to be cheaper. Make sure you take a look at the cover on offer and how much it costs.
Extras: Some funds offer extra services to their members that may interest you. Examples can include discounted home loans or health insurance, regular educational seminars or discounted or free access to financial planning services.
You may also consider how “consumer friendly” a fund is. For example do they have a good helpline and website or will you be sent regular performance updates and newsletters?
If you want to compare funds there a few great online sources that can help you.
www.chantwest.com.au. Each provides access to some free information but you may have to pay for more detailed reports.
For more on super check out the July issue of Money magazine, out now!
Money Magazine's July 2010 issue is out now. Subscribe now.