According to the Super Member Engagement Report from the Investment Trends research firm, from May 2023 to May 2024, 42% of non-retirees had not interacted with their superannuation fund at all.
Were you one of them?
We’re not here to name and shame you!
We just want to shed light on the fact that it’s easy to forget to check on your super fund’s performance when you’re busy earning and living for the present.
What are the risks of this?
You may miss out on opportunities for higher returns and pay unnecessary fees.
You may also be unaware that your fund is underperforming, and it would be wise to change to a better fund option.
To help you avoid such risks, we’ve compiled all the information you need to make a superannuation fund comparison and a smart final choice.
Understanding Superannuation
Superannuation is a compulsory savings system designed to help you save for retirement.
Employers contribute a percentage of your salary (11.5% as of 1 July 2024) into a super fund, which is then invested to grow over time.
Superannuation funds are divided into four categories:
- Industry funds: For the general public and often linked to specific industries.
- Retail funds: Operated by financial institutions that offer a wide range of investment options and personalised financial services.
- Public sector funds: Available to government employees. These come with favourable benefits and lower fees.
- Self-managed super funds: Members contribute to the fund and are responsible for investing the contributions and managing the fund’s compliance and administration.
How will you decide which type of fund is right for you?
While the best option ultimately depends on your needs and priorities, five key factors can help you choose. What are they?
1. Performance Matters: Evaluating a Fund’s Track Record
Evaluating a super fund’s short and long-term performance is important to see its recent effectiveness as well as its stability and reliability over time.
A fund’s short-term performance measures its returns (the profits or losses generated by the fund’s investments) over a period of one to three years, reflecting recent market trends and fund management decisions.
On the other hand, long-term performance assesses a fund’s returns over five, ten, or more years to show its consistency and resilience through various market conditions.
To evaluate short-term performance, review annual reports and quarterly updates from the super fund, found on the fund’s official website or by contacting the fund directly.
Compare these returns with relevant benchmarks and peer funds using information available on financial news websites, comparison websites, and reports from regulatory bodies like the Australian Prudential Regulation Authority (APRA) or the Australian Securities and Investments Commission (ASIC).
For long-term evaluation, look at historical performance data over five to ten years or more, checking for consistency in returns and how the fund performed during market ups and downs.
More on APRA
APRA conducts an annual superannuation fund performance test, comparing funds’ net returns—after deducting fees and costs—against a benchmark over a specified period.
This test provides a standardised and transparent way to evaluate and compare funds, with failing funds flagged for underperformance. The results can then help you decide on the right fund.
2. Fees, Fees, Fees: How They Affect Your Savings
Super fund fees can substantially affect your retirement savings. Knowing what you’re being charged helps you make informed decisions to maximise your super growth.
Admin fees are a flat fee or percentage of your balance that covers the cost of managing your account, and investment fees are typically a percentage of your balance for managing the investments within your super fund.
Additional fees may include insurance premiums, fees for buying or selling investments within your fund, and fees for financial advice.
You need to be aware of how even small fee differences can impact long-term savings.
Enter the “compounding effect”, where the earnings on your super fund are reinvested to generate their own earnings over time.
This effect can significantly grow your savings, but fees can reduce the amount that gets reinvested.
3. Insurance Options: Protecting Your Future
Superannuation funds generally offer three types of insurance:
- Life insurance: A lump sum payment to your beneficiaries if you die.
- Total and permanent disability insurance: A lump sum payment if you become permanently disabled and unable to work.
- Income protection insurance: A regular income for a specified period if you’re unable to work due to illness or injury.
To determine your insurance needs, consider your age, occupation, dependents, and financial obligations.
If you’re older or have a high-risk job, you may need more coverage.
The number of dependents you have also affects how much protection you need to guarantee their financial security. And any mortgages or loans you have will need to be covered.
Now, you can research the insurance options different funds offer and whether they can meet your needs.
Premiums for insurance are deducted from your super balance, which can reduce your retirement savings over time.
So be sure to weigh up whether the level of coverage justifies the cost by comparing the potential benefits to the impact on your super’s growth.
4. Investment Choices: Aligning With Your Goals
Superannuation funds invest your money on your behalf. You can choose the best investment option based on your risk tolerance: your ability and willingness to endure market fluctuations in your investments’ values.
Higher risk offers the potential for higher returns, while lower risk usually means more stable but lower returns.
What super fund investments are available?
- Conservative: Lower-risk investments like cash and fixed interest. Suitable for those with low-risk tolerance or nearing retirement.
- Balanced: Mixes lower-risk and higher-risk investments, such as cash, fixed interest, and equities. Ideal for those with moderate risk tolerance.
- Growth: Higher-risk investments like equities and property. Best for those with high risk tolerance and a longer investment horizon.
To choose investments that align with your future financial goals
- Assess your risk tolerance. How comfortable are you with market fluctuations? If you’re younger, perhaps you can afford to take more risks, but if you’re close to retirement age, you might prefer stability.
- Define your retirement goals. What is your desired retirement age? What will be your lifestyle and financial needs? Higher growth investments might be necessary for ambitious goals, while conservative options might suit more modest plans.
- Diversify your portfolio. Want to reduce the risk of significant losses? Gains from one investment can offset poor performance in another, so spread your investments across different asset classes, such as equities, fixed interest, property, and cash.
- Regularly review your investments. Are they still aligned with your goals? Adjust them as needed.
5. Additional Services
Additional services a super fund provides can make your life much easier, so take these into account.
Look for
- Online calculators: These tools can estimate how much you need to save for retirement and assess the impact of different superannuation contribution levels and investment strategies.
- Educational content: Articles, webinars, and tutorials a fund provides can enhance your understanding of superannuation, investment options, and financial planning, empowering you to make informed decisions.
- Financial advice: Some funds offer access to financial experts who can advise you on optimising your super.
- Customer support: Responsive and knowledgeable customer service can assist with any questions or issues.
Superannuation Fund Comparison Tools: Your Starting Point
The Australian Taxation Office’s YourSuper comparison tool is an online resource designed to compare various super funds’ performance, fees, and services.
You can also use it to see how one of your funds compares against any others in your myGov account.
Reputable websites like Canstar and RateCity also offer valuable tools that compare funds based on their ratings for standard super fund criteria.
It’s important to note that these tools do not provide personalised advice or detailed information on specific investment options within each fund.
While they are a great starting point for understanding and comparing funds, you’ll need additional resources and advice to make the best choice.
Underperforming Funds: What To Do
If you discover your fund is underperforming, don’t panic! It may just be a short-term fluctuation, which is normal as markets naturally fluctuate.
Plus, short-term dips don’t necessarily indicate long-term issues.
To assess whether your fund’s underperformance is a temporary issue or a more persistent problem, visit the APRA website to find out if your fund has failed the annual performance test and your super fund’s website for detailed reports and performance results.
If your fund has failed the test or has consistently underperformed, consider switching to a better-performing fund, using the superannuation fund comparison tools we’ve discussed to evaluate other options.
Alternatively, you may decide to stay with your current fund and closely monitor its performance, particularly if it has had strong performance in the past or aligns well with your risk tolerance and investment goals.
Always weigh the potential benefits and risks before making any changes.
Let GeekBooks Help You Get the Most From Your Super Fund Choice
Your financial future depends on the choices you make today.
After making a superannuation fund comparison and choosing the best option, you’ll need support managing your fund for maximum returns.
That’s where our professional superannuation services come in.
Complete this online booking form or call 02 9158 3591 to connect with our superannuation experts today.