How to ensure your super fund is the right one for you

There’s no room for complacency when it comes to your super and pension funds.

How to ensure your super fund is the right one for you

It has been an eventful year for superannuation, with the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry shining the spotlight on the industry. We are seeing the big banks sell off their wealth management arms and a number of super funds have announced mergers. The Government also released its Protecting Your Super package, and some of the changes have come into effect, mainly relating to fees and insurance.

There is a sense of change in the air. While it is uncertain where the industry will land at this point, we believe there are some key areas that members can look at to determine whether they’re in a good fund … or whether it’s time for a change.

What should you look for?
SuperRatings is a leading superannuation research house that has reviewed superannuation products for many years. Our mission is to close the information divide between super funds and their members and create a strong superannuation industry that benefits all Australians. Researching and comparing superannuation products can seem overwhelming, but we believe there are some key areas you can look at to identify those funds that offer the best value for money.

In assessing a fund’s offering, we look at more than 300 individual characteristics, with our approach recognised as one of the most detailed in Australia. In 2018, we reviewed more than 430 superannuation and 180 pension products to identify those offering the best value for money for members, and we’re excited to share with you some insights into our approach.

Traditionally, funds are assessed based on investments and fees, as well as insurance. For a simple way to track performance for these metrics, you can visit the SuperRatings Top 10 site. However, to get a deeper understanding of an individual fund’s value, non-monetary aspects are also important, such as the type of advice services available, member education initiatives, an easy-to-use website, and whether you can contact customer service quickly and easily.

When we analyse pension products, we also look at the flexibility offered to members in accessing their money. For example, can they choose the payment date that suits them? Can they choose to have their pension payments automatically increase with inflation? Is it easy to update beneficiaries? We believe funds should strive to be seen as easy to deal with by their members, particularly for those members entering retirement and drawing down on their retirement funds. Access to advice services in the lead up to and during retirement is also an important feature to provide members with peace of mind.

Long-term performance is key
We believe long-term performance is vital. Having a good track record of performance over seven to 10 years indicates that a fund is a consistent performer. When markets go up and down it can be unsettling, and you may think you should switch if your fund isn’t performing well. But we can’t emphasise enough that longer-term performance is what you need to look at.

Switching funds when the market gets the jitters can put you in a worse position than if you had made it through the bumpy ride, particularly if you are retired and drawing down on your investment. In saying that, past performance is not an indicator of future performance, so we also look at a fund’s investment process, including whether they have the right people in place and a robust investment strategy.

There are also many different types of investment options out there, so it is important you review the level of risk involved and whether it suits both your tolerance and the stage in your life i.e. whether you are nearing retirement or already in retirement. Capital stable and conservative balanced options have lower exposure to growth assets such as Australian and global shares, whereas balanced and growth options have higher allocations to these markets.

Pension return benchmarks – balanced options

 

FYTD

3 Years

5 Years

7 Years

10 Years

Top quartile

6.4%

10.2%

9.0%

10.4%

9.9%

Median

5.9%

9.4%

8.2%

9.7%

9.5%

Bottom quartile

5.1%

8.4%

7.2%

8.7%

8.8%

*As at 30 April 2019. Based on SuperRatings’ SRP50 Balanced (60-76) Index containing pension options with growth asset ratios of 60% to 76%
*FYTD indicates financial year to date return.
*
Returns are net of investment fees, tax and implicit asset-based administration fees.
Annualised returns for each period are shown.

Accumulation return benchmarks – balanced options

 

FYTD

3 Years

5 Years

7 Years

10 Years

Top quartile

5.7%

9.5%

8.3%

9.3%

9.0%

Median

5.0%

8.5%

7.7%

8.9%

8.6%

Bottom quartile

4.3%

8.1%

7.0%

8.4%

8.3%

*As at 30 April 2019. Based on SuperRatings’ SR50 Balanced (60-76) Index containing Balanced options with growth asset ratios of 60% to 76%
*FYTD indicates financial year to date return.
*
Returns are net of investment fees, tax and implicit asset-based administration fees.
Annualised returns for each period are shown.

How much should you pay?
A one per cent difference in fees charged over 30 years could result in a difference in your super balance of up to 20 per cent, so it’s important to look at the amount you pay. To help with this, SuperRatings analyses fees across super and pension products to provide some benchmarks to use. The top quartile indicates the cheapest funds, the bottom quartile is the cut off for the more expensive funds, and the median represents funds that sit between cheap and expensive in terms of fees.

This table summarises fee benchmarks for balanced options across the main pension products in the market, using an account balance of $250,000.

Pension fees on a $250K account balance – balanced options

 

Fee as a % of
$250K balance

Total

Member fee

Percentage-based
administration fee

Investment related fees and costs

Top quartile

1.0%

$2532

$0

0.17%

0.69%

Median

1.2%

$3010

$71

0.30%

0.85%

Bottom quartile

1.6%

$3950

$98

0.61%

1.04%

*Fees used in the analysis are as at 31March 2019 using most recent data available to SuperRatings at the time of preparation. Fees include percentage-based administration fees, member fees, investment management fees (incl. performance-based fees), indirect cost ratios (ICRs) and taxes, but exclude any applicable employer rebates.

This table summarises fee benchmarks for balanced options across the main accumulation products in the market, using an account balance of $50,000.

Accumulation fees on a $50K account balance – balanced options

 

Fee as a % of
$50K balance

Total

Member fee

Percentage-based
administration fee

Investment related fees and costs

Top quartile

1.1%

$527

$53

0.10%

0.66%

Median

1.2%

$615

$78

0.25%

0.83%

Bottom quartile

1.6%

$818

$91

0.56%

1.01%

*Fees used in the analysis are as at 31March 2019 using most recent data available to SuperRatings at the time of preparation. Fees include percentage-based administration fees, member fees, investment management fees (incl. performance-based fees), indirect cost ratios (ICRs) and taxes, but exclude any applicable employer rebates.

Advice services

There is a wealth of information available on fund websites on topics such as budgeting, selecting investment options, risk, retirement, the impact of the Age Pension and aged care. Check your fund’s website to see what information it provides online. Seminar programs are also a good source of information on topics ranging from investments to retirement planning. Contact your fund if you wish to find out more information and/or arrange a consultation with an adviser.

Time for a health check
The end of the financial year is the perfect time to check the health of your super or pension fund and make sure you are on track.

If you would like to have a chat, we suggest talking to your fund or an adviser who you trust to make sure your super is fighting fit for the future. The ‘choosing a financial adviser’ section of the Government’s MoneySmart website may assist in finding a financial adviser who could provide a specific fund recommendation for you, if this is of interest.

If you decide you want to switch superannuation providers, this is a relatively straightforward process. From 1 July 2019 exit fees were banned, so if you do decide to leave your fund, you will no longer be charged.

You can contact the fund you wish to move to and obtain a rollover form (these are often available on funds’ websites). Most funds also perform rollovers over the phone or online. You can also use the MyGov website to create an account by using this link and clicking on the ‘Super’ tab.

Funds are making it easier for members to monitor, switch and engage with their super, so don’t put it off – your future self will appreciate that you took the time.

Disclaimer: All content in the Retirement Affordability Index™ is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

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COMMENTS

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old frt
1st Oct 2019
12:42pm
I am in a industry Platinum rated pension fund (it is one of the best ??? ) balanced option . Yet the return is less than 7% net PA after fees and adding back pension payments, from when I commenced a pension 4 years ago. YET THE FUND CLAIMS 9-10% RETURNS FOR THE PERIOD . I don't think we will be able to expect those type of returns in the current climate in the next few years. My primary income is from my SMSF.
Bren
1st Oct 2019
1:21pm
I don't think you can create a new super account by using Mygov and linking to ATO. You can rollover existing accounts to other existing accounts but you will have to create the new account with the new provider before the mygov method can be used. This has not been made clear in the last para. of the article above.
Bren
1st Oct 2019
1:21pm
I don't think you can create a new super account by using Mygov and linking to ATO. You can rollover existing accounts to other existing accounts but you will have to create the new account with the new provider before the mygov method can be used. This has not been made clear in the last para. of the article above.
The Care Bear.
1st Oct 2019
5:09pm
Be very careful moving funds if you have grandfathered provisions as you may well lose the benefit your existing fund enjoys.